Public Bill Committee

[Sir Nicholas Winterton in the Chair]

Schedule 4

Approved Regulators

Amendment moved [this day]:No. 255, in schedule 4, page 142, line 14, leave out sub-paragraph (3) and insert—
‘(3) Alterations are exempt unless the Board has directed that they are not to be treated as exempt for the purposes of this paragraph.’.—[ Robert Neill.]

Nicholas Winterton: I first come to one or two little domestic matters. I am delighted to be back from the Falkland Islands, where I was in the company of other Members of Parliament, not least the Minister of State responsible for the armed services, as well as Lord Parkinson and his wife, representing Baroness Thatcher, my wife and the shadow Defence Secretary. We attended ceremonies, with hundreds of veterans and the families of those who lost their lives in that conflict 25 years ago. It was a wonderful experience, and the ceremonies in various parts of the islands where memorials were dedicated by the Earl of Wessex, Prince Edward, were very moving occasions. They were much appreciated by all present: service personnel, islanders and politicians who were down there as guests of the Falkland Islands Government and the Ministry of Defence.
I am back here, however, to ensure that we make a little more progress than I understand we have been making, and I am pretty tough. However, it is warm and humid, and although I am not normally known for taking off my jacket—I may be forced to do so later on—I am happy that those who wish to may do so.
I would also like to ask colleagues—at some stage, perhaps towards the end of this Committee stage—to indicate to myself and to Mr. Cook their satisfaction with the new process of the explanatory statements. Are they helping to ensure more informed debate? It would be helpful to the Chairmen’s Panel—to myself and to my co-Chairmen—to hear from hon. Members to hear how efficiently and effectively they believe that the new process is. It puts our Clerks Department under quite a lot of extra pressure, but if the new system helps the Committee and the House, I believe that we should stick with it. I hope that it is helpful.
When the Committee rose, I understand that the hon. Member for Bromley and Chislehurst was on his feet moving the amendment. I ask him to resume his speech.

Bob Neill: I welcome you, Sir Nicholas, back from the Falklands. I am sure that the Argentine Government will not regard your return from the Falklands as their having dropped their guard, or reduced our level of deterrence in any way. I welcome you to the Committee. We are delighted to be serving under your chairmanship.
You will be glad to know, Sir Nicholas, that I have effectively concluded the essence of my speech. I hope that the proposals, which are supported by the Law Society, will commend themselves to the Government, because we think that there is a constructive way forward here to improve the Bill. Without more ado, I move amendment No. 255.

John Hemming: It is a pleasure to serve under your chairmanship, Sir Nicholas, and I welcome you back from the Falklands.
There is an interesting point about schedule 4, and particularly this amendment. The amendment would make things far more efficient. Rather than trapping everything in a bureaucratic muddle, it would allow the Legal Services Board to identify those things with which the board must get involved. To that extent, if we are looking for an efficient and effective way of regulating the legal profession, this would be a good starting point. It would be worth making the same point on schedule 4 itself given that it is interesting how the Lord Chief Justice is important here, but not important in terms of appointing the Legal Services Board. However, the amendment would provide a more effective approach; it is very good.

Bridget Prentice: May I also express my delight that you, Sir Nicholas, you have returned well and full of enthusiasm from the Falklands? We all know how firm and fair you will be throughout our proceedings and look forward to continuing our debates under your wise chairmanship.
I understand that there is anxiety over the need to ensure that the board operates in a proportionate fashion. I agree that it should operate that way and that it would go against that principle if we were to create a system that encourages micromanagement by the board. Equally, we do not want to add unnecessary delay or inefficiency to the day-to-day operation of the regulatory regime, but I do not consider that the current arrangements under schedule 4 will have either of those effects.
I come to what has been slightly lost in the amendment. First, the hon. Member for Bromley and Chislehurst touched on the fact that, under schedule 4, the board will have wide discretion to exempt certain classes of rules. It is appropriate that it should be possible to exempt minor alterations to regulatory arrangements or those alterations that are not particularly relevant. Secondly, the proposed change would not necessarily make the board’s relationship with the approved regulators more efficient, despite what the hon. Member for Birmingham, Yardley said. In fact, I would go so far as to say that it might have the opposite effect.
Even if the presumption were that the regulatory arrangements are to be exempt unless otherwise directed, the board would not be doing its job properly if it did not know what it was exempting. It could not be expected to relinquish oversight unless it was confident that  in each case the regulatory arrangements in question required no input from the board in order to achieve the regulatory objectives. The outcome would be increased regulatory burdens on both the board and the approved regulators. The board would have to monitor regularly and assiduously all regulatory arrangements, and approach constantly each of the eight—so far—approved regulators to assess the ever-changing scope of the exemption and evaluate whether it needed to create further exceptions.
The frequent and unpredictable demands created by that system would increase rather than reduce the burden on approved regulators. A system whereby approved regulators are free to submit proposals for exemptions seems to be more straightforward rather than less. Apart from my reservations about the procedure and inefficiency, I believe that the change would compromise our primary objective of accountability and consumer protection through the regulatory framework.
If the board is to be strong and effective as an oversight regulator, acting in the interests of the consumer, it is vital that it is aware of the regulatory environment. That does not mean that it has to take an interventionist approach. Indeed, I hope that it does not. However, to avoid doing so, it needs to have full information in order to make its judgment.
The hon. Member for Bromley and Chislehurst referred to the present position and what the Bill will, in effect, achieve in terms of streamlining the system. At the moment, under the procedure set out in part II of schedule 4 to the Courts and Legal Services Act 1990, any alteration to the rules relating to the conduct of persons exercising a right of audience or a right to conduct litigation, any alteration to the qualification regulations of the authorised body or the alteration of any rights granted by those bodies must be approved by the Secretary of State. Before doing so, the Secretaryof State must follow the procedures set out under schedule 4 to the Act, which usually involves obtaining the advice of the legal services consultative panel and the Office of Fair Trading, each of which gives its advice separately.
The Secretary of State then sends the advice to the authorised body for its observation and consults the designated judges for their views before making a final decision. There is no limit to how long the process can take and, as the hon. Member for Bromley and Chislehurst rightly pointed out, at times it has taken many months, if not years. It can take even longer if the rule is complicated or if the authorised body is unwilling to amend the rule to take into account the worries of the legal services consultative panel. That was the position with the Law Society’s conflict and confidentiality rules.
Under the Bill, the board will have sole responsibility for approving the rules. Under the procedures setout in part 3 of schedule 4, alterations to regulatory arrangements will be approved either automatically, if the board considers them to be exempt, or after an initial determination. They will also be subject to the warning notice procedures in paragraphs 21 to 35, under which the board might consider advice from appropriate persons and representations made bythe approved regulator making the application. The process is subject to a time limit to ensure that applications do not become drawn out. For example, the approved regulator must make representations within 28 days, and alterations will be approved automatically after 12 months unless the board refuses the application or applies to extend the consideration period.
The three-stage process will ensure that the regulatory arrangements for different levels of risk are given appropriate consideration. It will certainly streamline the current situation. On that basis, although I understand the concerns about complication and length of time, I think that the hon. Member for Bromley and Chislehurst might find that the situation outlined in schedule 4 makes for a better system. I hope that he will therefore withdraw his amendment.

Bob Neill: I am grateful for the Minister’s response. I take on board a number of her points, and I am grateful for movement and a degree of reassurance on time limits. We are still concerned, as are a number of professional bodies. In practice, regulatory bodies of this kind have a tendency towards mission creep. It is important that we are vigilant to ensure that that does not become the case, because it is then, however good the intentions, that the administrative burden and expense can grow. We hope that the Government will continue to keep an open mind in the light of experience. We shall see how the rest of these matters develop, but for the time being, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 4 agreed to.

Clauses 21 and 22 ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 23

Transitional protection for non-commercial bodies

Amendment made: No. 110, in clause 23, page 12, line 1, leave out ‘a’ and insert ‘an independent’.—[Bridget Prentice.]

Question proposed, That the clause, as amended, stand part of the Bill.

Hon. Members: No.

Nicholas Winterton: Do you wish to debate it? If anybody rises, I shall not proceed with the Division, but I must say that it is a little late for the Opposition to wish to debate it. I did say that I would move through the amendments fairly speedily. If any Opposition Member wishes to speak in a stand part debate, they must rise immediately to catch my eye.

Question put and agreed to.

Clause 23, as amended, ordered to stand part of the Bill.

Clauses 24 to 26 ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 27 ordered to stand part of the Bill

Clause 28

Approved regulator’s duty to promote the regulatory objectives etc

Question proposed, That the clause stand part of the Bill.

Henry Bellingham: A warm welcome to you this afternoon, Sir Nicholas.
We debated amendment No. 244, which, if the Committee recalls, was grouped with amendmentNo. 206 in the debate about clause 3. The Minister will recall the discussion about the phrase
“so far as is reasonably practicable”.
She charmingly said that she would consider my wording to see whether she could accept it. I was wondering whether, at this stage, she could fill us in and say whether she had been able to take the matter further.

John Mann: The word “transparent” comes up in clause 28(3)(a). Will the Minister clarify that “transparent” includes transparent to consumers and complainants, as well as to regulators and the board?

Bridget Prentice: I can absolutely assure my hon. Friend and guarantee that “transparent” applies so that the consumers as well as the regulators are clear about what is going on.
On the issue of “reasonably practicable”, I must tell the hon. Member for North-West Norfolk that I have not had time to consider his wording in detail, but I shall most certainly come back to him on it shortly.

Question put and agreed to.

Clause 28 ordered to stand part of the Bill.

Clause 29

Prohibition on the Board interfering with representative functions

Henry Bellingham: I beg to move amendment No. 245, in clause 29, page 14, line 26, leave out ‘prejudiced’ and insert ‘improperly constrained or influenced’.
It is vital that the representative functions of the approved regulators operate smoothly. The regulators must be proactive and imaginative, and we supportthe Clementi recommendations that the professional bodies separate their regulatory responsibilities from their representational role; that makes manifest sense. We support also the requirements in clause 30 that the board make rules on internal governance.
The amendment would ensure that the Legal Services Board interfered only with the regulatory functions of the approved regulators, not with the representative arms of those bodies. I am sure that that is Her Majesty’s Government’s intention, but I am concerned about the use of “prejudiced” in clause 29. For example, if a professional body properly provides a service to its members such as defending them in the event of disciplinary action, along similar lines to the work of the Medical Defence Union, one would hope that the regulatory arm would regard it as a perfectly proper exercise of the representative body’s role and that it would recognise the importance of properly representing people who face serious disciplinary charges.
However, the regulatory arm may take a different view, particularly if the defence service’s actions led to a number of people being cleared of disciplinary charges. In those circumstances, the regulatory board might argue that its effectiveness was being prejudiced by the representational side’s activities. For that reason, we are suggesting a better wording. The use of the word “prejudiced” in this context is too wide. It is an altogether stronger term than the phrase that we are recommending should be substituted for it: “improperly constrained or influenced”. That substitution would make a great deal of sense. We are putting in wording that more neatly and succinctly meets HMG’s requirements.

John Hemming: We will support the amendment—that is, I will support the amendment for the moment, and “we” will support it if my hon. Friend the Member for North Southwark and Bermondsey turns up later.

Henry Bellingham: Where is the “we”?

John Hemming: He will be here soon. It is not a game; I think going into the “we” is out of order.
The point in English law is that it is the perception of external influence—the perception of bias—which is the key driver. Although it has been argued that “prejudiced” is a stronger word and it may have more emotive value than other words, it is actually much easier to prove improper influence than it is to prove prejudice, which presumes that a matter has been prejudged. To that extent, the amendment would tighten up the legislation and, although it may be a probing amendment, the Minister should look on it favourably.

Bridget Prentice: A lot of consideration has gone into the use of the word “prejudiced” in the clause. It has been argued that it would not be unusual for representative bodies to seek to influence regulatory decisions, if it is in the interests of their members to do so. As the approved regulator is the body recognised in the Bill as responsible for both representative and regulatory functions, I would argue that it should accept certain responsibilities as part of that role. It might be reasonable for the representative arm to try to influence regulatory decisions, but it is important that the board is able to take appropriate action where it considers that the approved regulator is allowing representational interests to prejudice the exercise of regulatory functions.
It is important to ensure that the board is able to act where, for example, the actions of the representative side discredit the regulatory arm, resulting in damage to consumer confidence. Clause 29(2) is necessarily and deliberately wide in definition to ensure that the board is not prevented from taking such appropriate action. Therefore the use of the word “prejudiced” is correct in the context.
The hon. Member for North-West Norfolk has raised specific concerns. To suggest that the board may use its powers only where exercising the representative functions has “improperly constrained or influenced” the regulatory functions implies that there may be circumstances where it is “proper” for representative interests to constrain or influence regulatory functions.  I do not think that that is appropriate. Furthermore, the proposed formulation suggests that there must be an element of wilfulness, but again that might notbe the case. There might be no intent whatsoever on the part of the regulator, but that does not mean that the board should be prevented from acting if necessary.
I understand that these are often are very fine definitions, but “prejudiced” is more appropriate than “improperly constrained or influenced”, because the latter wording would narrow the definition just a little bit too much.

Henry Bellingham: I am grateful to the Minister. In her inimitable charming way, she has persuaded me that the use of the word “prejudiced” will not have some of the unintended consequences that I had envisaged. On that basis, therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.
 Mr. Bellingham rose—

Nicholas Winterton: The hon. Member for Bassetlaw was a little late rising—perhaps it is to do with the heat.

John Mann: It was my left leg—the old war wound, Sir Nicholas. I beg to move amendment No. 278, in clause 29, page 14, line 30, at end add—
‘(3) When acting under subsections (1) and (2) of this section the Board must satisfy itself that approved regulators have established organisational structures and procedural practices which distinguish sufficiently clearly between their regulatory and representative functions.’.

Nicholas Winterton: With this it will be convenient to discuss amendment No. 246, in clause 30, page 15, line 16, at end insert—
‘(3A) When making rules under subsections (1) to (3), the Board must satisfy itself that approved regulators have established organisational structures and procedural practices which distinguish sufficiently clearly between their regulatory and representative functions.’.

John Mann: By tabling the amendment I wished to highlight one of the major consequences of the Bill and to offer the Minister an opportunity to strengthen it mildly in the Government’s own direction of travel, with the backing of the Opposition parties and following Clementi’s recommendation that regulatory and representative functions need to be clearly distinct and separate. I wish to ask a question or two of the Minister, and to throw a wider challenge out to the Committee and to readers of Hansard.
When a complaint is made to the Law Society and is passed to its regulatory arm to examine, it may well—individually or generically—also be a complaint to the Bar Standards Board. For example, there was the case of Hobson and others v. AMS and others, which was adjudicated by the Law Society. In that case, counsel’s opinion was fundamental. The complaint was made against the solicitor, but it could have been made against the barrister had the complainants had known counsel’s opinion and who the barrister involved was.
Similarly, the myriad complaints concerning hearing loss cases that are beginning to arrive at the Law Society could also go to the Bar Standards Board, as happened last week. There is a suggestion that there is unhealthy collusion between firms of solicitors and barristers on how counsel’s opinion affects consumers. In a lot of cases involving industrial deafness, a solicitor might tell someone, “You have a case,” and the case goes all the way, but the employer defends the case and resists the claim. Before the case goes to court, the firm might get counsel’s opinion at the request of the solicitor, which is usually a requirement built into a small clause of the insurance policy. The solicitor then says, “Oh no, there’s no case—absolutely no case whatsoever.” On that basis, insurance funding is withdrawn and the case does not go to court.
If there were many such cases and a pattern emerged, the matter might be deemed worthy of investigation, but by whom? The regulatory arms covering solicitors and barristers should look at such issues together and work through both policy and remedy, but my experience suggests that that does not happen. Although solicitors’ regulatory and representative arms are close, as are those of barristers, there is a distance in the relationship between the two regulatory arms and they do not come together as regulators. That coming together is essential if the consumer is to be protected, particularly in the more complex and insidious cases in which patterns of potential consumer disquiet emerge. Mildly strengthening such measures in the Bill might well be within the ambit of the Government’s intent, so I politely invite the Minister to consider the amendment.

Henry Bellingham: Amendment No. 246, which stands in my name and that of my hon. Friends, including the shadow Secretary of State, as well as the name of the shadow Minister in the Liberal Democrats, is very similar to the lead amendment. The amendment moved by the hon. Member for Bassetlaw would insert anew subsection (3) in clause 29, which is headed, “Prohibition on the Board interfering with representative functions” Our amendment would insert a new subsection (3A) in clause 30, which is headed, “Rules relating to the exercise of regulatory functions”.
Our aim is very straightforward: to reinforce the point that there must be a separation between representative and regulatory roles. We are requesting that proper separation be included in the Bill. Obviously, some approved regulators will have a separate building and be a separate team of people—there will be a manifest separation from the representative function. However, some of the smaller organisations, such as the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys, will find it quite difficult to have a separate building or arm to the operation, and they will be looking at something more like a Chinese wall, which operates very effectively in many City organisations.
What we are proposing is common sense. I will not elaborate further because the hon. Member for Bassetlaw has put a very strong case. I am delighted that we are on the same side of the argument.

David Burrowes: Is not the argument strengthened by Sir David Clementi, not only in his intention but in his comments and evidence to the Joint Committee, and by the Joint Committee’s own response and recommendations? The separation between the representative and regulatory bodies should be more explicit in the Bill, notwithstanding the fact that existing bodies, such as the Law Society and Bar Council, have already put their own house in order.

Henry Bellingham: Indeed. It is quite interesting that the Baroness Ashton of Upholland noted that very point in the debate in the other place. Unfortunately, she did not accept a very similar amendment in the House of Lords that was proposed by our noble and learned Friend Lord Kingsland. We are trying to make progress. The Minister is in a good mood this afternoon. I hope that she will accept our amendment.

John Hemming: My name is on one of the amendments. Watching how the General Medical Council regulates the medical profession, it is very obvious to me that it does not investigate certain things that it finds too embarrassing. That illustrates the importance of separating regulatory and representative roles. We need procedures that create something more substantial than a Chinese wall.

Bridget Prentice: If I am in a good mood this afternoon, it is because we are all on the same side on the issue of separation between regulatory and representative functions. It is absolutely fundamental to the B+ model of regulation proposed by Sir David Clementi. Since the draft Bill was published, we have strengthened the legislation in this area. I am very persuaded by the arguments put forward by all sides, but clause 30 ensures that there is separation between regulatory and representative functions. Among other things, the rules require that the approved regulators adequately resource their regulatory arms and that the people exercising the regulatory functions can make representations to the board, the consumer panel, the Office for Legal Complaints and other regulators.
The clause takes into account the recommendations of the Joint Committee, and makes it clear that once the board is established, it will need to set out more detailed criteria for the separation of regulatory and representative functions of approved regulators.
My small “but” relates to the point made by the hon. Member for North-West Norfolk. The small regulators would need Chinese walls because their functions would not quite be separated. I want to consider whether the additions suggested by the h G and my hon. Friend the Member for Bassetlaw would make life easier for the small regulators yet still ensure that the regulatory and representative functions of the bigger boys in the playground were clearly separated.
I ask my hon. Friend to withdraw the amendment, but I am happy to consider the matter further.

John Mann: I hear a strong echo of my suggestion that the regulatory arms, particularly of barristers and solicitors, should indeed work closely together, and not hide away in their new and distinct buildings. On that basis, I trust the Minister—on this and all matters, future as well as past. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 ordered to stand part of the Bill.

Clause 30

Question proposed, That the clause stand part of the Bill.

Nicholas Winterton: With this it will be convenient to discuss new clause 12—Separation of funds proportionality
‘(1) In exercising its functions under sections 29 and 30, the Board shall pay particular regard to what is proportionate.
(2) Without prejudice to subsection (1), nothing in sections 29 or 30 shall exclude—
(a) the exercise of or involvement in regulatory and representative functions by the same persons or bodies within an approved regulator;
(b) the exercise of regulatory and representative functions from common premises.’.

Henry Bellingham: New clause 12 should be judged in the light of the previous debate, as it, too, is about the separation of functions and proportionality. Some might argue that I am backtracking slightly on what was said in our debate on the previous amendment, which was moved by the hon. Member for Bassetlaw.
The new clause was inspired by the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys. It provides that when exercising its functions under clauses 29 and 30, the board should pay regard to what is proportionate. It makes it clear that the small organisations—a number of approved regulators are small, highly specialist and technical bodies—simply cannot be expected to separate completely their representative and regulatory roles. That point was made by the Minister only a moment ago.
The professions represented by the institutes are not closed; one does not have to be a member of either institute to practice as an attorney. If they started charging their members excessive sums—if their cost base increased too much—they would lose members and thus lose critical mass. That is why they should be treated with proportionality. I urge the Minister to consider accepting new clause 12. She was sympathetic to the previous group of amendments, tabled by myself and the hon. Member for Bassetlaw, and she could combine that with the acceptance of new clause 12. It should protect the small specialist regulators who form an important part of the legal services system.

John Hemming: In a sense, we return to the trade union question by discussing the extent to which patent agents and the like provide regulated rather than non-regulated services.
I am nervous about the new clause. In some circumstances, one would want those who makes regulatory decisions to be unbiased, which is to say that they should not also have a representative role. However, that would not necessarily mean that the two sides should not have any involvement at any point; they might have the same receptionist or something like that. Even in smaller organisations, I would be nervous about a situation in which the body’s elected president took regulatory decisions. I am therefore not in favour of a statutory prevention—of rules that insist on some separation of personnel.
I accept that in a smaller organisation, if people need to be regulated, there are constraints, because people might have to work out of the same premises. The approach has to be proportionate, but there will be circumstances in which one would want to distinguish between the personnel, so that those who make the regulatory decisions are not democratically accountable to the people about whom they make those decisions.

Bridget Prentice: Given the remarks that I made in relation to clause 29, it is only logical that I go away and reconsider the matter. My immediate reaction to new clause 12 is that it is a duplication of what we already have. I accept the points made by the hon. Member for Birmingham, Yardley about the clarity that is needed. I assure the Committee that the Bill will not prevent people from exercising regulatory functions and carrying out representative functions if necessary. However, given that the new clause and the existing provisions sit together, it will be appropriate for me to consider the new clause.

Question put and agreed to.

Clause 30 ordered to stand part of the Bill.

Clause 31

Performance targets and monitoring

John Mann: I beg to move amendment No. 279, in clause 31, page 15, line 22, after (a) insert—
‘(za) investigate the performance by an approved regulator of any of its regulatory functions.’.
The amendment is helpful to the Government’s objectives and I am keen to offer it to the Minister. As do the Government, I regard light-touch self-regulation as the way forward. To demonstrate that, we need to ensure that the lightest of touches is highly effective. I make an analogy with a surgeon: the legal profession does not require an 18th century surgeon removing arms and legs in traditional ways to get to the root of the problem; it requires small amounts of microsurgery, involving the latest laser technology, to ensure accuracy and precision. That is the point of the amendment.
If the regulators use too blunt or too heavy an instrument, the result will be vague and will cast aspersions on the profession overall. They will fail properly to identify the precise problems and to rectify them through effective regulation. In that respect, intervention from on high, to ensure that performance is of the highest standards, has proved most useful. I cite as an example the legal services ombudsman’s special report on miners’ compensation, which highlighted a number of minor inconsistencies. They were grabbed by the regulator, which totally outpaced the ombudsman in delivering an effective, consistent system and moved in a tiny period of time from agreat variety of responses—some of them absolutely superbly detailed and legally precise, some rather waffly, vague and inaccurate—to a consistency of approach that meant that those who were complaining could begin to see consistency in judgments, and gain confidence in the system.
 The regulator needs to be able to examine performance as it is happening, not merely retrospectively. Then, if there is a swathe of problems in a certain area, the regulator can improve the consistency and quality of performance in actual time, rather than retrospectively. Such strengthening of the ability to intervene on a light-touch, microsurgical basis would be entirely in the spirit of the Government’s successful attempts to introduce self-regulation.

John Hemming: This amendment seems so helpful that I am surprised that the provision is not already in the Bill. We support it.

Nicholas Winterton: I commend the hon. Gentleman’s brevity.

Bridget Prentice: On amendment No. 279, I very much agree with my hon. Friend the Member for Bassetlaw: the board must be able to investigate approved regulators’ performance of their regulatory functions before setting targets. It would not be properly carrying out its oversight function if it did not do that. We have drafted the Bill so that it provides for the board to conduct an appropriate level of investigation of the discharge of the functions of the regulators—and not just in clause 31. My hon. Friend knows that I do not approve of the phrase “light touch”, so he tempts me down the wrong path when he uses it and other such phrases.
Let me give further examples of ways in which the board has powers. Under clause 7, it may do
“anything calculated to facilitate, or incidental or conducive to the carrying out of any of its functions.”
and it also has the power to obtain information and documents from approved regulators under clause 55. Across the Bill as a whole, we have given the boardthe appropriate tools with which to examine the effectiveness of approved regulators in exercising their regulatory functions. I anticipate that in most circumstances the board will be able to take appropriate, proportionate action, and will try to set appropriate targets through dialogue with the approved regulators. However, if a situation should arise in which that cannot or does not happen, it will be open to the board to require relevant information more formally, as under clause 55. That power is enforceable through the High Court.
I would be a wee bit concerned about inserting another power for the board to investigate in case that should muddy the waters. Given that it is already able to require information to aid its regulatory decisions,a more explicit power to investigate might need tobe supplemented by powers of search and seizure. Without there being a proper procedure in place to govern such use, that could be seen as disproportionate. 
Given the ability of the board to carry out an appropriate level of investigation, and the desire of all of us to avoid disproportionate action, I would ask my hon. Friend to withdraw his amendment. Across the Bill as a whole, the board has sufficient powers to carry out the functions that he so much wants it to have.

John Mann: I hear what the Minister says. I am happy to leave the matter for her to contemplate, because there is a danger that the board could end up being too general. It will depend, of course, on whom the members are. If she is looking for suggestions to give the board proper teeth, my hon. Friend the Member for North Durham would be a suitable independent chair, but the position might be filled by someone who is over-disposed to favour the legal profession. The variation could be enormous. I leave it for the Minister to contemplate further, as later amendments might supplement the point more effectively. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Bridget Prentice: I beg to move amendment No. 1, in clause 31, page 15, line 30, leave out from ‘on’ to ‘and’ in line 31 and insert
‘one or more of the regulatory objectives,’.

Nicholas Winterton: With this it will be convenient to discuss Government amendments Nos. 2 to 5.

Bridget Prentice: This group of amendments seeks to reverse the changes made in another place to the thresholds of the board’s regulatory powers. Those amendments sought to limit the exercise of the powers to circumstances involving significant adverse impact on the regulatory objectives as a whole. The Government amendments will restore the formulation enabling the board to act where there is an adverse impact on one or more of the regulatory objectives.
The Government have not been persuaded that it is necessary or desirable to strengthen the thresholds as the other place proposed. The board needs flexibility to act quickly and decisively where there is a failure. To wait until that failure has a significant adverse impact on the objectives as a whole is likely to be damaging to consumers and, I suggest, to the legal profession.
In particular, the amendments are needed to remove the requirement that the adverse impact be significant. We have serious concerns that such qualification of the thresholds will fetter the board’s ability to regulate effectively. Retaining the word “significant” could cast doubt on whether the board can take steps to rectify certain regulatory failings. In the case of smaller regulators, who may regulate fewer reserved activities or authorised persons, the impact on the objectives may not meet the significant threshold even where there is clear evidence of consumer detriment in the failing regulator’s field. The Government want to make it clear in the Bill that the board will be able to act in relation to a regulator regardless of that regulator’s size. The simple reference to adverse impact will achieve that without leaving damaging room for argument.
We also seek to reverse amendments restricting the board’s ability to take action where the adverse impact is on the regulatory objectives as a whole. In making regulatory decisions, the board will of course need to balance the impact on one objective against the other objectives and to assess them together. That might even be the intention behind the amendments made in the other place, but we do not believe that it will be their effect. We consider that those amendments could limit recourse to the regulatory powers to circumstances impacting on all the objectives, which is clearly far too restrictive. Our amendments in this group will make it plain that the board can act where there has been an adverse impact on one or more of the regulatory objectives.
The Committee need not look further than the Bill to see that there are clear safeguards preventing the misuse of the board’s powers. The board is already under a duty to have regard to best regulatory principles, including transparency, accountability and proportionality, when carrying out all its functions. Before taking action, it must publish policy statements. As we will discuss later, the Government have tabled a refined amendment to clause 49 that will ensure that when publishing policy statements, the board must have regard to the principle that its principal role is the oversight of approved regulators. In addition, when the board considers it appropriate to use its powers, it must comply with procedural safeguards, such as the requirement for it to consider representations from the approved regulators, and the obligation for it to consult the consumer panel, the senior judiciary, the Lord Chancellor and the Office of Fair Trading.
Finally, I highlight the point that the board will not operate its regulatory powers in a vacuum. The way in which it exercises those powers will be subject to public scrutiny, it will be obliged to publish an annual report, and when appropriate, its decisions could be judicially reviewed. The combined effect of those provisions will ensure that the board can and will act only when it is right and proper that it does so. For those reasons, I move the amendment.

Henry Bellingham: I am grateful to the Minister for explaining both the situation and why Her Majesty’s Government want to remove from the Bill the wording that was inserted in the Lords. She has made her case, but the Opposition do not agree with it. There was a lengthy debate in the other place in Committee, and on Report when there was a vote on the provision. It was won not by a whisker, but by 52 votes, which in the other place is a reasonable-sized majority. I have just had a look at the voting list, and a significant number of Labour and Cross-Bench peers voted for the wording that was inserted. The argument was won and the vote was won, and I am disappointed that the Minister has come to the Committee with these amendments.
The reason that the Bill was amended in the Lords is simple. The amendment was designed to ensure that the various powers of intervention by the board in the regulatory work of the approved regulators would be triggered only by an adverse impact on the regulatory objectives as a whole. The original Bill stated clearly that the board’s disciplinary measures could be enforced on the basis of an adverse impact on only one of the regulatory objectives. The Opposition accept the board’s need to have formal powers, but as the Joint Committee, on which my hon. Friend the Member for Enfield, Southgate sat, made clear, those powers should be used only when necessary—when, for example, the approved regulators are clearly failing. We do not want an over-intrusive board trying to micro-manage the approved regulators.

Stephen Hesford: If one looksat the regulatory objectives in clause 1, it seems astounding that if there is a clear breach of
“protecting and promoting the public interest”,
the hon. Gentleman does not want the board to act; that if there is a clear breach of
“supporting the constitutional principle of the rule of law”,
the hon. Gentleman does not want the board to act; that if there is a clear breach of
“improving access to justice”,
the hon. Gentleman does not want the board to act; that if there is a clear breach of
“protecting and promoting the interests of consumers”,
the hon. Gentleman does not want the board to act; that if there is a clear breach of
“promoting competition in the provision of services within subsection”,
again, the hon. Gentleman does not want the board to act.

Nicholas Winterton: The hon. Gentleman is making a very good point by way of intervention, but it is an intervention, not a speech. If he wishes to continue but bring it to a conclusion briefly, I am happy that he should do so.

Stephen Hesford: You are very kind, if I may say so, Sir Nicholas. I think the hon. Gentleman takes my point.

Henry Bellingham: I am grateful to the hon. Gentleman, who sat on the Joint Committee. As I understand it, the Joint Committee recommended that the amendment, which won on a vote in the Lords,be made to the Bill, so he made that point clear at the time.

Stephen Hesford: Was there a vote in the Joint Committee?

Henry Bellingham: Well, the Joint Committee made that recommendation and it went through. Presumably, the hon. Gentleman could have demanded a vote and a minority report could have been published. It is still open under the Bill for the board to punish the approved regulator for breaching only one of the regulatory objectives as long as it was sufficiently serious to have an adverse impact on the objectives taken together. To some extent, his concerns have been met in the Bill, as it stands now.
The Government have said several times that the lead responsibility should rest with the approved regulator. There will be a need for agreement and partnership, and it is important that the board does not adopt an excessively heavy-handed approach. It is also worth pointing out that the regulatory objectives are to some extent bound to be in contention with each other. For example, let us consider the requirement to undertake prescribed training prior to admission as a solicitor. It would clearly have an adverse effect on competition in legal services if everyone with a law  degree could be admitted immediately as a solicitor. The potential supply of solicitors would be that much greater.
However, failing to require appropriate pre-admission training would have a detrimental effect on the interests of consumers and probably on one or two of the other regulatory objectives. Under the original formulation of the Bill, the LSB would be entitled to take action against an approved regulator whatever approach it took to pre-admission training. That is just one example of why the Lords made such a change.
We ought to consider the overall position. We want a balanced approach and, as they stand, the clauses offer that. After all, the Government have said time and again that they want full co-operation between the board and the approved regulators, and that they want a spirit of good will and understanding. We must remember that they have not sought to differentiate in weight between the regulatory objectives to which the hon. Member for Wirral, West referred. They are all of equal weight.
 Stephen Hesford rose—

Henry Bellingham: I shall not give way as I intend to come to a conclusion quite soon. The Whip is keen for us to make progress. Let us focus on one objective. It could be tantamount to acting in a arbitrary fashion, so the proper approach is for the board to analyse each of the regulatory objectives before deciding to act. It is a balancing exercise. There is no need for the board to become another front-line regulator. The third-party endorsement for such an approach is widespread. There is no question about it. The Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys made it clear that all of the different procedures should be in line with the Hampton risk-based regulation recommendations.
In its latest report, the Bar Standards Board made it clear that there should be the sensible, delicate-touch regulation that was envisaged by Sir David Clementi. It pointed out that the danger with any other approach was that unnecessary costs and delay would be built into the regulatory process. I have not once mentioned “light” touch. The Minister has prohibited the use of that phrase. I would instead use the words “delicate”, “de minimis”, “sensitive” or “pragmatic” to describe the sort of touch that should be used. Alternatively, perhaps we should intervene only in extremis or on a common-sense basis.
Let us consider the organisations that endorsed the Lords amendments, which were won by a substantial majority. We must bear in mind not only those that I am sure the hon. Member for Bassetlaw would describe as the usual suspects, but the many others that supported the amendments and considered that they would improve the Bill substantially. While I take on board entirely the points made by the Minister about other elements of protection under the Bill and the provisions on proportionality and checks and balances, it would be a retrograde step to support the Government’s amendments. They are not necessary. If they had been, the Lords—after substantial debate that involved a lot of very experienced people—would not have wanted to amend the Bill in such a way. That is why Conservative Members will work extremely hard, but in a constructive and pragmatic way, to keep the Bill as it is.

John Hemming: I am sure that my party unanimously took the same view in the House of Lords. Light touch is not necessarily the best way of describing the measure. It is, rather, a rational approach to the attitude that if improving one regulatory objective has a worsening effect on another, intervention is required. I like to take practical examples. Let us consider the balance between improving access to justice, which must be a priority in terms of the rule of law, and increasing public understanding of the citizen’s legal rights and duties. Both of those are regulatory objectives under clause 1. My example concerns a firm of solicitors that is particularly good at ensuring that people have access to justice. It gets information out of the clients, takes it to the courts and litigates effectively in, say, a hearing damage case, so that compensation is paid. However, it does not explain every step of what it is doing. Because of that, it is deemed to be contravening clause 1(1)(g) on increasing public understanding.
The initial regulator might say, “Well, it is all right that it has acted in a mechanical manner, because it is improving access to justice, and people who would not otherwise have got justice have done so.” However, the LSB would say, “Ah, but we are losing out on clause 1(1)(g), so we need to intervene, even though we are benefiting on subsection (1)(c).” The point about taking the objectives as a whole is that we can take into account whether we are winning on one and losing on another. Clearly, if we are losing out on one objective, and it is not making any difference to any of the others, we are losing out as a whole. The issue is not necessarily to do with lightness of touch, it is moreto do with proportionality. This is just a rational approach to the fact that LSB intervention should be based on a net loss, not on a situation in which there is a loss on one regulatory objective and a gain on another.

David Burrowes: It is a pleasure to make a few remarks under your chairmanship, Sir Nicholas.
I support my hon. Friend the Member for North-West Norfolk in wanting to assert the importance of the work undertaken in the other place, and to highlight all the good work that would be undone by the Minister. I should like to draw attention to her undue emphasis on the wording—no doubt she will rebut this—in suggesting that the fact that one cannot easily define “substantial” will lead to a lack of clarity. We should draw back from details of definition and consider the important point of principle. Our concern is not so much the strength of intervention of the LSB, but the way in which the Government wish to implement and apply the Bill.
I return to the opening debate on the regulatory objectives. When we debated whether there was a hierarchy of, or competition between, regulatory objectives and sought assurance that there was not,the Minister argued that it was made clear in the explanatory notes that there was no hierarchy. Throughout her remarks, she has made particular reference to certain objectives and not to others. We are concerned that when we address the issue of how the strength of intervention of the LSB will apply, she is not balancing the objectives. That is of the essence in this Bill. Right at the start, in clause 1, all the objectives have equal value. They need to be properly balanced;  that was the purpose of the Lords amendment, which is now part of the Bill. Its aim was to considerthe impact of the objectives, rather than have one competing with another. To respond to the intervention of the hon. Member for Wirral, West, one particular objective might be infringed, but that infringement needs to be considered against the whole balance of the objectives.
The Minister’s concern is that the amendment would undermine the clause by allowing intervention when one or more of the regulatory objectives is adversely affected. It undermines the case that was made atthe beginning and raises concerns not just about intervention. Indeed, given the passage of the Government amendment relating to appointmentsto the Legal Services Board, the Government’s involvement without proper checks and balances and the concurrence of the Lord Chief Justice, there is a concern that independence is being undermined systematically in terms of the Legal Services Board’s potential to intervene on any of the objectives.
I ask the Minister at this eleventh hour to take careful note whether Baroness Ashton indeed said in the other place when the amendment passed that, in her opinion, all their Lordships were making the same point—whether in fact we are all united in the point that we are seeking to make. Can she assure me that a balanced approach will still be taken to regulatory objectives, and not the pick-and-mix approach that causes so much concern about over-intervention in the regulatory bodies?

John Mann: There is a unity in the Lords—a unity of judges, barristers and lawyers, the vested interests who raise the spectre of loss of independence but somehow feel it appropriate for the judiciary to participate and vote in the very Parliament from which they claim they want independence. The term “cake and eat it” comes to mind, but unfortunately we have not had the opportunity to make constitutional changes to put them out of their misery in that respect.
Perhaps I am the only one pursuing a light touch following the debate, but light-touch self-regulation is very dear to my heart. As for the idea that there should be no effective Legal Services Board—that its powers should be watered down by the House of Lords and the vested interests in the House of Commons so that it becomes a meaningless talking shop unempowered in any specifics—there are two good retorts to that. The first is that no investigation has yet been made by the regulatory arm or anyone else in the legal profession into the situation with barristers and legal expense insurance. I called for such an investigation. The current system is a scandal. It is a national scandal, and not just individuals but the whole system should be investigated, because it brings barristers’ profession into disrepute.
Secondly—it was more publicised previously—there has still been no investigation into why large numbers of solicitors dealing with industrial deafness claims are allowed to do so, giving specific and crucial advice, over the telephone. That is a national scandal, and the legal profession should be embarrassed and humiliated by it. Any suggestion that this House and this Committee should water down light-touch powers to allow self-regulation with proper teeth is, frankly, nonsense. While the Minister resists my attempts to  beef up parts of the Bill, I trust that she will be equally robust in resisting the House of Lords and others trying to water it down.

Bridget Prentice: My hon. Friend has made the case for me in many ways. There are a number of important and effective regulatory powers in the Bill, and they are absolutely necessary to ensure that failure by an approved regulator can be properly addressed. It is crucial that those thresholds should be set at the right level and that the board should not be restricted from exercising its powers when appropriate. It is clearly in the interests of the consumer for the board to be able to take steps quickly without having to wait until there is a significant adverse effect
“on the...objectives taken as a whole”.
As I have already set out, the Bill provides strong safeguards that will prevent the arbitrary use of the regulatory powers. To that end, I am absolutely of the belief that the amendments made in another place are unnecessary and, as my hon. Friend the Member for Bassetlaw said, they will undermine the board’s role of being a strong, oversight regulator that is able to react decisively to problems in the legal sector, a number of which he raised.
I shall finish by talking about the view of the National Consumer Council. It said that it was
“concerned that this will leave the LSB impotent to act, since this word”
—the word “significant”—
“can be interpreted differently and is difficult to prove. Further, the Board should not have to wait until a significant event before taking action to protect consumer interests.”
As much as anything else, that is the purpose ofthe Bill, and I commend the NCC’s views andthose of my hon. Friend. For that reason, I hopethat the Committee will endorse the Government’s amendments and reverse the decisions made in another place.

David Burrowes: Is the Government’s main concern about the upping of the threshold because of the word “significant”, or is it that under the Bill one must apply the
“objectives taken as a whole”,
whereas the amendment mentions
“‘one or more of the...objectives’”?

Bridget Prentice: It is both.

Henry Bellingham: I am not satisfied with what the Minister said, so we shall be voting against the amendments.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 7.

Question accordingly agreed to.

Henry Bellingham: On a point of order, Sir Nicholas. It is a request for information. Is there any possibility of Government amendments Nos. 2 to 5 being taken together? I know that they amend different clauses, but are we to vote on them only when we reach those clauses?

Nicholas Winterton: I have to tell the hon. Gentleman, who I understand has considerable legal training and expertise, that they have to be taken in accordance with the Bill—as and when appropriate, and not together.

Clause 31, as amended, ordered to stand part of the Bill.

Clause 32

Directions

Amendment made: No. 2, in clause 32, page 16, line 14, leave out from ‘have,’ to end of line 15 and insert
‘an adverse impact on one or more of the regulatory objectives,’.—[Bridget Prentice.]

Clause 32, as amended, ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 34 ordered to stand part of the Bill.

Clause 35

Public censure

Amendment proposed: No. 3, in clause 35, page 17, line 27, leave out from ‘have,’ to ‘and’ in line 28 and insert
‘an adverse impact on one or more of the regulatory objectives,’.—[Bridget Prentice.]

The Committee divided: Ayes 9, Noes 6.

Question accordingly agreed to.

Clause 35, as amended, ordered to stand part of the Bill.

Clause 36

Public censure: procedure

Henry Bellingham: I beg to move amendment No. 247, in clause 36, page 18, line 15, at end add—
‘(4A) As soon as practicable after deciding to publish a statement, the Board must give notice to the approved regulator stating that it has reached that decision and setting out the terms in which the statement is to be published; and the Board must not publish the statement until after the expiry of 7 days beginning with the day on which notice is given under this subsection.’.

Nicholas Winterton: With this it will be convenient to discuss the following:
Clause stand part.
New clause 13—Appeal against public censure
‘(1) An approved regulator in respect of whom the Board decides to publish a statement under section 35 may appeal to the court on one or more of the appeal grounds.
(2) The appeal grounds are —
(a) that the decision was not within the power of the Board under section 35;
(b) that any of the requirements of section 36 have not been complied with in relation to the imposition of the penalty and the interests of the approved regulator have been substantially prejudiced by the non-compliance;
(c) that in all circumstances, the publication of a statement under section 35 is, or the terms of the statement published or to be published are (or would be), manifestly unreasonable or inappropriate;
(d) that the decision is unlawful on any ground that would give rise to a claim for judicial review.
(e) that the decsion is unlawful on any ground that would give rise to a claim for judicial review.
(3) An appeal under subsection (1) must be made within the period of 42 days beginning with the day on which the notice was given to the approved regulator.
(4) Where an appeal is made before the expiry of the 7-day period the Board must not (unless the court otherwise orders) publish the statement until the appeal has been withdrawn or dismissed.
(5) On an appeal under subsection (1), where the court considers it appropriate to do so in all the circumstances of the case and is satisfied of one or more of the appeal grounds, the court may—
(a) quash the decision to publish a statement, or
(b) vary the terms of the statement (and, where the statement has been published, direct the Board to publish to the same extent the statement as varied).
(6) In this section “the court” means the High Court.’.
Amendment No. 248, in clause 39, page 20, line 3, at end insert—
‘(da) that the imposition of the penalty on any ground that would give rise to a claim for judicial review.’.
Amendment No. 249, in clause 39, page 20, line 27, leave out subsection (7).

Henry Bellingham: I have papers that could allow me to prolong the debate for as much as an hour and a half, but the Labour Whip keeps making rude faces at me, so I shall do my level best to curtail the debate; I shall try to be succinct and to get the point across cogently yet effectively.
Amendment No. 247 makes it clear that the board should give notice to the approved regulator, saying that it has reached a decision and setting out how the statement should be published. Again, that is perhaps stating the obvious, but the amendment would also allow the approved regulator time to consider its response. In the interests of fairness, the amendment says that the Legal Services Board should not
“publish the statement until after the expiry of 7 days”.
That is what amendment No. 247 says and I very much hope that the Minister will see the logic and good sense of the amendment.
New clause 13 would give the right of appeal against public censure; very simply, the new clause makes it quite clear that there should be that right of appeal. It is plain to the Opposition that the Government intended that there should be measures in the Bill to provide for such an appeal. On the other hand, we have examined the Bill carefully and we have not seen that it offers that necessary level of protection to the public, or to anyone who might be censured, including any approved regulator. Therefore, having this new clause makes a great deal of sense.
I shall briefly address amendments Nos. 248 and 249. Very simply, amendment No. 248 inserts onpage 20, line 3:
“that the imposition of the penalty”
is unlawful
“on any ground that would give rise to a claim for judicial review.’.
Amendment No. 249 is consequential on that amendment. It would take out clause 39(7), which is basically an ouster clause. Subsection (7) says:
“Except as provided by this section, the validity of a penalty is not to be questioned by any legal proceedings whatever.”
To my mind, that is a straightforward ouster clause. There is a strong argument for judicial review. I will not repeat all the arguments that were made in the other place, but it seems to me that the amendment makes sense, is logical and is very much in line with what the Government are trying to do, which is to ensure that there is fair treatment for all concerned. I do not see how one could have that fair treatment unless we accept this amendment, which would allow the claim for judicial review.
Therefore I hope that the Minister will look carefully at what we have proposed. I have gone through these amendments as succinctly and as quickly as I can. On that basis, I beg to move the amendments.

Nicholas Winterton: May I say to the hon. Member for North-West Norfolk that he need not be intimidatedby the Government Whip, the hon. Member for Worcester? However, if he is determined to remain very much in order and succinct, I know that members of the Committee will be very grateful indeed.

Simon Hughes: I would first like to welcome you, Sir Nicholas, to the Chair; it is very good to serve under your chairmanship again.
I shall be extremely brief, to say that this amendment, those selected with it and the new clause appear to have much to commend them. They appear to clarify matters and to make everything much more transparent, and therefore they would add to the justice of the procedures. We are minded to support these measures. I will obviously wait to hear what the Minister says in reply, but I hope that she will be sympathetic to them.

Bridget Prentice: All these amendments seek to create additional provisions for enabling decisions to be challenged. I would argue that they are all unnecessary, because the Bill already achieves essentially the same outcome and these amendments would just create duplication and add to bureaucracy.
New clause 13 and amendment No. 247 would insert a new right of appeal from decisions on public censure and therefore they duplicate the judicial review grounds that already exist. Amendments Nos. 248 and 249 would allow challenges to be brought in judicial reviews for decisions to impose financial penalties. Again, that duplicates the grounds that already exist as part of the appeal process.
I am minded to consider amendment No. 247, which states that seven days’ notice must be given. I may want to look at that further. I should say though that I am not convinced that it is entirely necessary. Clause 36 already provides that the board publishes a statement, and it must allow a period of 28 days or more to allow the regulator to make representations. I understand the idea of the seven days, but I think that it is probably covered already. However, I will look at the matter again.
I will speak briefly about financial penalties and the circumstances in which they are involved. There is a qualitative difference in financial penalties. We need to guarantee the applicant’s right to challenge not only the imposition of that penalty, but also the amount of it. That is not to say that it would not be possible to challenge the amount of the penalty, or the timescale for payment, via judicial review, but it is not necessarily automatic. It is more likely that the amount would have to be manifestly unreasonable.
It is for those reasons, therefore, that I feel thereis a lot of duplication in the amendments. The amendments are not necessary because we have covered in an appropriate fashion the way in which approved regulators can challenge decisions of the board. The hon. Member for Bassetlaw would say that nobody knows how to go to judicial review better than the lawyers. I am quite confident that the proposed system will establish a fairness without further duplication.

Henry Bellingham: I am grateful to the Minister for that explanation. I take on board her last point. It was more of a probing amendment on judicial review. I was encouraged by what she said on the matter of the seven days. On reflection, she may agree more with what I was saying. The seven days gives the organisation that is being censured time to respond. That is important in the interests of fairness all round. Perhaps the Minister could come back to me on that on Report. I am grateful to her for her remarks. On that basis, I beg leave to withdraw the amendments.

Amendment, by leave, withdrawn.

Clause 36 ordered to stand part of the Bill.

Clause 37

Financial penalties

Simon Hughes: I beg to move amendment No. 225, in clause 37, page 18, line 30, at end insert—
‘( ) The Board may not determine that it is appropriate to impose a penalty unless it is satisfied that the matter cannot be adequately addressed by the Board exercising the powers available to it under sections 31 to 36.’.
The amendment is supported by the hon. Member for North-West Norfolk and some of his hon. friends. I will read the proposal that was put to me and others by the Law Society which explains why the amendment is both sensible and justified. In the clauses so far, we have looked at various ways in which there can intervention. We have considered censure in clauses 35 and 36, directions that can be given by the board in clauses 32, 33 and 34. We considered the setting of performance targets in clause 31. Before that, we examined the rules that require the separation of regulatory and representative functions.
We are now discussing a clause on financial penalties. The amendment is designed to restrict the powers of the board by prohibiting it from imposing a financial penalty unless it is satisfied that it cannot adequately address the matter by exercising its other powers. It would put penalties on a gradated scale and would force the board to consider other types of intervention, such as direction or censure, before imposing a financial penalty. That position would be consistent with that of other regulatory regimes that have been established by Parliament in recent years. The amendment would ensure that the Legal Services Board could not impose fines unreasonably. It would also ensure that any action that is taken does not hit the wrong target.
It is commonplace for direct regulators of services, particularly those provided commercially, to havethe power to fine those who fail to comply with requirements. That is unarguable. The recent McCrory report emphasised the importance of the availability to regulators of a wide range of sanctions, including the power to fine, to ensure that the sanction for the breach of regulatory requirements is sufficient to removeany financial incentive to fail to comply with responsibilities. It is sensible to have a financial penalty to deal with wrongful activity for financial gain. That is entirely logical. The Law Society is seeking powers to fine solicitors for regulatory breaches in appropriate circumstances so that, as a regulator, it has an effective range of available sanctions, rather than having to refer all such cases to the Solicitors Disciplinary Tribunal. That is entirely sensible, too.
I have been told—I have thought about it and I cannot dispute it—that it is unusual for there to be a power to fine a body that carries out regulatory, non-commercial activities. I have been given the examples of the Council for Healthcare Regulatory Excellence, which has no power to fine any professional medical bodies, and the Financial Reporting Council, which has no power to fine the accountancy bodies.
Given that the Legal Services Board has extensive powers to make directions, which are by definition enforceable, it is far from clear that a power to fine approved regulators is necessary. The Joint Committee picked that up in its report during pre-legislative scrutiny and the Government said that they would reconsider the issue, but they have not come back with an answer to the concerns expressed in the Joint Committee or elsewhere. In the Lords, the issue was debated in part. Baroness Ashton, the Minister, sought to justify the power to fine with reference to the position of other regulators, including the Financial Services Authority and Ofgem. Both of those directly regulate service providers, however; there is no intervening tier, so they do not supervise other regulators. The Legal Services Board is, by definition, the umbrella. Other regulators, of which the Law Society is one, have been approved to set up in anticipation of the legislation. It is not a parallel situation. We are talking about a three-tier structure; the other organisations that have such a power to fine are part of a two-tier structure.
I have been told that the only example that supports the Minister’s case is the power of the Legal Services Complaints Commissioner, which was created under an addition to the Access to Justice Act 1999. It was intended to cover a specific problem with the Law Society’s handling of consumer complaints. I remember the debate on the subject, and there was thought to be a need to give the commissioner more teeth in that context. It is unusual for a supervisory regulator to have the power fine another regulator, so that power needs to be confined to circumstances in which no other sanction is appropriate. The first argument against the provision is therefore that it is not based on precedent and it appears wrong in principle.
The second argument is that, with legal services regulation, day-to-day responsibility for regulatory action will, by definition, rest with the regulatory arm of the relevant professional body. The representative side will not be able to control the way in which the regulatory arm operates; indeed, it would be a serious breach of the principle of independence if it sought to do so. One of our great debates was about ensuring that we separate regulation and representation absolutely and rightfully.
Any fine would not impact on the regulatory arm unless it were charged against the regulation side’s own budget, which would defeat the whole purpose of having a fine, because that would mean fining the fund that is there to put things right and to deal with problems. Any such fine would effectively be borne by the professional body, and thus its members and the representative arm. Members of the regulatory arm would not even be subject to any sanction from an electorate for having incurred the fine, as they are all appointed under Nolan principles rather than elected, so they could not be ousted. It would not be the equivalent of a vote of no confidence that would result in them leaving their office.
There is a risk that lawyers who are regulated by the approved regulator will bear the whole burden of any such fine without being able to exercise any effective influence over the people whose failings led to the imposition of the fine. That seems wrong to me, as a matter of principle. I believe that the Joint Committee also thought it wrong, but the answers given in the Lords did not address the issue. That is my second reason for asking the Minister to be sympathetic.
In the debates in the other place, the Government tabled an amendment to ensure that approved regulators cannot be fined for the failings of their regulatory arm unless a direction has already been made under clause 31. That provides some welcome protection for approved regulators. By placing appropriate requirements on their regulatory arms, they will be able to ensure that they can intervene where necessary to ensure that directions are complied with, but there is still a significant risk of fines being used inappropriately, because the current drafting does not prevent that. It does not seem to guarantee that other options have to be considered before that power is used.
My last point is that there is frequent media pressure on professional bodies across the board, not just legal bodies, and on regulators to flex their muscles and exercise their powers to intervene. That is rightful and understandable in certain cases; you and many others, Sir Nicholas, have been keen, in our talks on rail services in this place, that the regulator should be able to intervene when railway companies do not do their jobs properly and services are not what constituents of yours, mine and our colleagues would wish. It is absolutely right that there should be calls for that to happen, but that alone is not a good justification for it to be the common practice if other remedies are appropriate and available.
Good regulatory practice requires regulators to use the least draconian sanction that will meet the regulatory need. It would be quite wrong to fine an approved regulator simply because circumstances have arisen in which there is, in theory at least, a power to do so. The power to fine should properly be exercised only when the Legal Services Board is satisfied, under the provisions in the Bill, that no lesser sanction, such as direction or censure, will suffice. I believe that the Government have accepted that principle as far as the board’s power to intervene in the functions of approved regulators is concerned. I think that that was said to be generally the case by Ministers elsewhere, and I suggest that the same principles should apply to fines as it does elsewhere. On that basis, I hope that the Minister will accept our arguments, or at least take them away to consider, and will be sympathetic.

Henry Bellingham: My name and those of my colleagues have, indeed, been added to the amendment. It is a simple and straightforward, but nevertheless important, safeguard to ensure that the LSB does not impose financial penalties where lesser sanctions would suffice. The hon. Member for North Southwark and Bermondsey made a very powerful case. It is designed to prevent capricious, over-the-top fining. It is to ensure that the fining option is the last option available. I take on point his point: there will be quite a lot of pressure on the Legal Services Board to make examples and to flex its muscles. If it is to do that, an extra constraint needs to be built in. That is why we support the amendment and I hope that the Minister will accept it.

John Mann: You missed, I suspect, Sir Nicholas, the floods and downpours across the north of England over the weekend. Hon. Members are more than making up for it with their attempts to water down the Bill. Indeed, one wonders whether one is living in a parallel universe. I expect the Tardis to appear at any moment. I know which Time Lord will be backing the people and which will be backing the solicitors, barristers and judges.
It is absolutely extraordinary in the context of the Bill and what is happening in the real world that we are seeing attempt after attempt after attempt by the vested interests of the legal profession to look after their own. If this was trade union legislation 15 years ago, if this was the immediate fining of trade unions for technical flaws in the holding of industrial action ballots,would the hon. Member for North-West Norfolk(Mr Bellingham) argue that it was capricious and over the top? I think not.
Let me balance the argument and cite the case of four of my constituents who three years ago madea consumer complaint against Rayleys Solicitors. Rayleys Solicitors disputed it. They disputed the fact that these four, elderly, ill miners had a complaint. All four went with me to visit Rayleys unexpectedly, with a little bit of publicity, and we went inside and met the senior partners. We explained their case for justice in no uncertain terms. Still Rayleys refused to pay out. They still do today. There have been no fines on Rayleys. They are allowed to prevaricate. Why? Because every time one thing happens, the legal profession comes up with a legal excuse for challenging it.
My constituents were required to go through70 pages of technical legal arguments as the defence to a very straightforward complaint that they had been diddled and double charged over meagre compensation for emphysema, money they needed to give them a better quality of life. They had 70 pages of legal argument thrown at them as the defence that they are required to make a judgment on. It is only because of the common sense of the Law Society in allowing representation from people like me that these claims have ever seen the light of day.
Is it a coincidence that no miner or textile worker put in complaints before tiny numbers of MPs started to do so on their behalf? Is it just a coincidence that none of them did so, that they did not realise that they could challenge the solicitor who had, in some cases, stolen the money from them? That was done quite openly and quite deliberately and from large numbers of them. The solicitors then threw the legal book at them, wriggling every way, challenging the Law Society, challenging the regulation. They issued writs, bullied, threatened and intimidated.
There are solicitors who visited complainants at home. There are solicitors who sent third parties to visit complainants at home. For example, my constituent, after his third heart attack, is no longer in the statistics of the Law Society because he withdrew his complaint, fearing that the pressures being put on him by the solicitors who had done him over would kill him. Some of my constituents who, in the process of attempting to get justice, died—

Henry Bellingham: Is this relevant?

John Mann: It is relevant. The hon. Gentleman, who spoke about capriciousness and being over the top, says that it is not relevant. What is relevant in the context of this debate and these attempts to water down the Bill is nowhere to be found in the hon. Gentleman’s and the Liberal Democrats’ amendment.

Nicholas Winterton: Order. May I say to the Committee that what the hon. Gentleman is saying is relevant? When it is not, I will tell him.

John Mann: I implicitly trust your sound judgment, Sir Nicholas. As ever, I shall stick entirely to the relevant facts brought from my experience of my constituents, who were unable to be heard in the Joint Committee—I was unfortunately unable to be chosen to serve on that Committee—whose voices shouldbe heard in the case of these amendments and, if necessary, others. Any watering down of the powers in the Bill will be resisted. If the point was put to the people outside, the 60 million who are not part of the cosy legal profession, I know which way they would go. They would say that the Bill is a modest attempt at self-regulation. It is a generous attempt at allowing self-regulation—I applaud that light touch and think that it is what is appropriate for Government, and therefore I am out of touch with most of my constituents, who would like me to be far more robust. I call on the Minister strongly to reject these representations and others to water down the Bill because those with vested interests, not least in the House of Lords, wish to protect them.

Simon Hughes: The hon. Gentleman speaks with absolute justification, as far as I know, about solicitors’ abuse of their professional responsibility when acting in the sorts of cases that he has brought regularly to the attention of the House and dealt with locally. Nobody, and certainly nobody in my party, defends that activity. Nobody is suggesting that solicitors who behave inappropriately should not be dealt with.
If the hon. Gentleman is good enough to reconsider by re-reading the amendment, he will see that it does not say that there should not be fines or punishment for solicitors. It does not say that solicitors’ firms should not be punished or brought to book for breaking the rules and behaving in the disgraceful way that he described. It does not say that there should not be a fine on the Law Society, if appropriate. All that it says is that if the second tier of punishment, which involves punishment of the regulator—the Law Society in the case of solicitors—is a financial penalty, it has to come after consideration of the appropriateness of other matters. I do not think that that is contradictory to anything that the hon. Gentleman argues for. I certainly did not intend it to be, and on reflection, if he is fair-minded about it, I do not think that he will think that the amendment has that effect.

Bridget Prentice: I am a wee bit surprised to see these amendments. They were debated for some time in the other place, and we made a number of concessions at that time. I know that my hon. Friend the Member for Bassetlaw will not be happy to hear me say that, but we made some concessions and as a result the exercise of the board’s powers to fine is possible only where there has been a failure to meet the requirements imposed by clauses 30, 32 and 51. I am not persuaded that we should go any further than the scope of the amendments that we have already made. To do so would put the board’s powers to impose a financial penalty in the same category as its powers, for example, to cancel the approved regulator’s designation. That is what the amendment seems to seek to do, and so it does not recognise the regulatory chasm between the power to impose a financial penalty and the power to take away completely a body’s ability to authorise and regulate the provisions of reserved legal activities.
The amendment, therefore, would reduce the board’s ability to exercise what I believe is a key regulatory function to make appointments if it were no longer able to respond with the flexibility that it needs to address failing regulators. That is inconsistent with the current approach to regulatory sanctioning regimes, which argue for greater flexibility and the use of the widest range of sanctions possible.
The hon. Member for North Southwark and Bermondsey said that he could not find many examples of one regulator fining another. Almost certainly he is right. The model of oversight regulation that we are proposing is unusual, but Sir David Clementi thought it preferable to the establishment of a single body along the lines of the Securities and Futures Authority because it will retain the best parts of the existing arrangements. He argued also that the LSB should have the maximum regulatory flexibility, which is consistent with the findings of the Macrory review, which argued that regulators should have the widest range of sanctions possible.
We have modified the fining power to meet some of the concerns of the Law Society. I have to say to Opposition Members that the consumer bodies would not support the amendment if it meant that we were watering down the powers any further. There might be times when it is necessary to impose a financial penalty—for example, where there were repeated failings that could be addressed by censure each time, but where, accumulatively, the situation was out of control and firm action was clearly necessary. If the regulator expects a lesser power to be exercised each time it fails in the same way, and if that power has no real impact on the regulator in preventing future failings, clearly that regulator has far less incentive to correct those failings. The board would be stuck then with issuing the same censure over and again and the problem would never be resolved.

Stephen Hesford: Is not the point a little shorter? I know that the Minister is trying to do justice to what has been said, but is the point not that the amendment is completely unnecessary because, under clause 39(2)(c), one of the grounds for an appeal against financial penalties is that the penalty is unreasonable? If it were unreasonable, and there should have been a lesser penalty, the appeals procedure would find that to be the case.

Bridget Prentice: My hon. Friend is absolutely right. I raised clause 39 for that very reason in an earlier debate. The approved regulators would have that opportunity if they thought that the fine was unreasonable. I said specifically that almost certainly they would appeal on the basis of the amount, rather than anything else. He is right to point that out.
Consumers, who are at the heart of the Bill, consider that the power to impose a financial penalty is essential to the regulator’s remit. I think that they are right. It sends a clear message to the regulated body that it must improve its standards, and acts as a reminder to other bodies that failings will not go unnoticed or unattended. That is vital for the consumer. Unnecessary restraints would deal a blow to the very heart of the principles in the Bill. If I need to convince the Opposition of that, Which? did a survey and found that nearly four out of five people—78 per cent.—agreed that the independent regulator should be able to fine the legal profession if it did not do its job properly. More than 53 per cent. agreed with that strongly.
I urge the Committee to reject the amendment for the reasons given by me and by my hon. Friends. I cannot accept any further constraints on the power. Its purpose is clear, its necessity is verifiable and its scope is balanced. I hope that Opposition Members will reflect on what has been said and reconsider whether they are helping the legal profession by giving consumers the belief that this is another opportunity for it to look after its own interests rather than theirs.

Simon Hughes: The Minister knows that I am a reflective individual. I shall make three short points. The first is that Which?, a good organisation that produces a good magazine—I have often consulted it, as have other Committee members—does not surprise the world by finding that a majority of the public at large would like solicitors who do not do their job properly to be fined. I do not think that that quite wins the argument of itself. It is a simple question to which the likely answer is yes.
To answer the contribution of the hon. Member for Wirral, West, of course there is a power of appeal on the basis that a fine is unreasonable. That is as it should be. The argument was not that there should be no power to fine; it was simply that the power to fine should be the end of the options available. However, despite what arguments may still exist for the amendment and for others like it, the Minister has asked me to withdraw it and to reflect. I am happy to reflect. I shall go back and read what she said earlier when the debate is printed. On that basis, and on the basis that I shall return to the matter if necessary, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 37 ordered to stand part of the Bill.

Clauses 38 to 40 ordered to stand part of the Bill.

Clause 41

Intervention directions

Amendment proposed: No. 4, in clause 41, page 21, line 9, leave out from ‘have,’ to ‘and’ in line 10 and insert
‘an adverse impact on one or more of the regulatory objectives,’.—[Bridget Prentice.]

The Committee divided: Ayes 10, Noes 6.

Question accordingly agreed to.

Clause 41, as amended, ordered to stand part of the Bill.

Clause 42

Intervention directions: further provision

Question proposed, That the clause stand part of the Bill.

Simon Hughes: I rise because I was wound up to speak to an amendment that was tabled by the hon. Member for Bassetlaw, but it was not moved.
I wish to ask a question, which of course is not directly related to the amendment but was promptedby it. The clause is about further provision for intervention directions and, therefore, gives options for interventions. The hon. Gentleman obviously thought about ways in which powers of entry and other things could provide opportunities for intervention.
I would be grateful if the Minister gave some examples of the sort of further provision that she envisages will result from the Bill. What would be an extreme example of a regulation under the Bill? Thisis an enabling clause to allow secondary regulation. Clause 42(6) states that regulations will be made by the Lord Chancellor, but will all regulations be made by him? Will the Minister say what kinds of measures she envisages will be introduced under the clause?

Bridget Prentice: As the hon. Gentleman said, this is an enabling clause, behind which lies the idea that, if an approved regulator failed or refused to provide the information that the board required, it could apply to the court for a warrant to search premises and to seize materials.
The clause gives the Lord Chancellor a power to make regulations about what the judge or justice of the peace should consider before granting a warrant, and how such a warrant might be executed. The Lord Chancellor must consult with or, indeed, receive the recommendation of the board before he makes regulations. I do not quite know whether that answers the hon. Gentleman’s question.

Simon Hughes: I expected the Minister to say what she said, but I would like to ask some further questions. Elsewhere in the Ministry of Justice portfolio, there is a Tribunals, Courts and Enforcement Bill, which I anticipate will be discussed on the Floor of the House on Report and Third Reading in the relatively near future. One of the issues with that Bill is powers of entry, to which the clause also relates. We should not legislate to give powers of entry without people knowing clearly who will come to enter and what powers they will have. Such people should be clearly identifiable as people with authority.
What protection will the Bill provide for a citizen or organisation—by definition, it could be an individual or a company? What does the Bill provide to ensure that people know that a person coming to enter comes with authority? I am troubled because a recent review of current powers of entry under law showed that there are hundreds and that they relate to different people and organisations. The ordinary woman or man should know that people who come to enter do so with authority, and how to check that. How would a person know that another was authorised and what would they have to do to find out? I appreciate that that might be a secondary legislation point, but giving more powers willy-nilly to people to knock on doors and to enter is dangerous, unless we protect citizens against it, except for in the most extreme circumstances. People should know exactly what the score is and have the ability to avoid such action.

Bridget Prentice: The hon. Gentleman makes a point that is important for two reasons. First, as he says, if someone comes knocking at one’s door, one ought to be able to know why and under what power they are there. Secondly, we should ensure that the Bill does not contradict the Tribunals, Courts and Enforcement Bill. The Lord Chancellor’s consideration of the judge or the justice of the peace is one aspect of the issue, but by way of reassurance to the hon. Gentleman, I shall consider the way in which the provision fits in with the Tribunals, Courts and Enforcement Bill, so that there is consistency. I shall write to the Committee about that at a later stage.

Question put and agreed to.

Clause 42 ordered to stand part of the Bill.

Clauses 43 and 44 ordered to stand part of the Bill.

Schedule 8 agreed to.

Clause 45

Cancellation of designation as approved regulator

Amendment proposed: No. 5, in clause 45, page 23, line 29, leave out from ‘have,’ to ‘and’ in line 30 and insert
‘an adverse impact on one or more of the regulatory objectives,’.—[Bridget Prentice.]

The Committee divided: Ayes 10, Noes 6.

Question accordingly agreed to.

Clause 45, as amended, ordered to stand part of the Bill.

Schedule 9 agreed to.

Clauses 46 to 48 ordered to stand part of the Bill.

Clause 49

The board’s policy statements

Bridget Prentice: I beg to move amendment No. 6, in clause 49, page 27, line 1, leave out subsection (3) and insert—
‘( ) In preparing a statement of policy, the Board must have regard to the principle that its principal role is the oversight of approved regulators.
( ) The statement of policy prepared under subsection (1) must—
(a) take account of the desirability of resolving informally matters which arise between the Board and an approved regulator, and
(b) specify how, in exercising the functions mentioned in that subsection, the Board will comply with the requirements of section 3(3) (regulatory activities to be proportionate, consistent and targeted only at cases in which action is needed, etc).’.
I hope that the amendment will not be controversial. It tries to clarify the drafting of an amendment, which was made in the other place, about the board’s policy statements. I hope that the revision sets out more accurately the relationship between the board and the approved regulators. As I have said on many occasions, we have accepted Sir David Clementi’s recommendation of the B+ model for oversight regulation, which should be the basis of the new regulatory framework. That principle allows existing regulators to continue to authorise people in respect of certain legal activities and to regulate those persons. Overseeing that front-line regulation is the Legal Services Board, which will take over many of the functions currently undertaken by a number of the existing oversight regulators, including the Secretary of State, the Master of the Rolls, the immigration services commissioner and the Archbishop of Canterbury. The board may move to regulate authorised persons directly only where there is no other suitable or willing regulator to carry out that role.
It is my understanding that the amendment introduced in the other place in many respects sought to achieve the kind of thing that I have just described. In trying to get the B+ model in the Bill, it is vital that we should not inadvertently compromise the existing provisions. For example, the Lords amendment provided that policy statements must
“respect the principle that primary responsibility for regulation rests with the approved regulators”.
Except in those extreme cases where the board may have to regulate directly, it will have quite different responsibilities from those of the approved regulators.
However, different as those functions may be, I do not want to give the Committee the impression that they are not as important, or that the board should not have any primary responsibility for regulation. A strong and independent oversight regulator is what consumers have long been calling for. We owe it to them to deliver just that. I do not want to be part of anything that relegates the board to being a regulatory also ran. I want to ensure that the role of the approved regulators is concerned with direct regulation of authorised persons, whereas the role of the board is principally one of oversight. I hope that the amendment makes that clear.
The other aspect of the Lords amendment was the reasonableness test. I felt that that had the potential to restrict the board from taking the appropriate regulatory action in some circumstances. For example, an approved regulator may make a number of decisions that in themselves all appear to be reasonable, but the overall effect of those decisions may have an adverse impact on the regulatory objectives. That may mean that the board would have to take action. In such a case, the reasonableness test might not be satisfied, which would then leave the board unable to take appropriate action.
Finally, we have always maintained that issues should be resolved informally before resorting to more formal statutory powers, in line with best regulatory practice. The Bill already provides for that by requiring the board to have regard to the principles in clause 3, including proportionality and targeting activities only where action is needed. However, I understand the desire of regulators to ensure that the board should highlight how those principles are achieved when setting out its policy statements. I have tabled the amendment to set that out, albeit without affecting the thresholds already set out in clauses 31 to 45 and in clause 76.

Simon Hughes: The amendment is a Government amendment to a Lords amendment. Can the Minister say whether she, colleagues or civil servants have had an opportunity to talk to those who argued for the amendment that the Lords made? Can she report back on the view of stakeholders or interested parties on whether the amendment has the benefits that she has argued for, without the disbenefits that they might say exist?

Bridget Prentice: My noble Friend Baroness Ashton has had discussions with colleagues in the Lords. I cannot say for sure whether the discussions wentinto the detail of the difference between the two amendments, but it was accepted that they would be happy to see an amendment if it gave general force to the principle behind the original one. We have now worded things in a way that provides the components necessary for the board to be able to set out the policy statements on how much it takes into account its oversight role, and the principle that the issues that should be resolved informally are resolved informally, using proportionality as the test before exercising the other powers.
As always, the amendment has gone before our consumer panel, which supported this wording rather than the one that appeared in the other place. As far as I am aware, it has also gone some way to addressing the Law Society’s concerns. We have tried to ensure that people who had issues with the amendment have had sight of where we are moving.

Henry Bellingham: I am grateful to the Minister for her explanation as to why the Government have proposed the amendment. I admit that what they are proposing is better than what was originally in the Bill, but the amendment inserted by their lordships House was sensible. I take on board the Minister’s concern about the words “could reasonably have taken” in subsection (3)(b), but if one examines the overall impact of the Lords amendment, one sees that it explains things in more detail than the Government amendment.
The Minister mentioned that she believed thatthe Law Society was happy with the Government amendment. It has made its position clear, stating in writing to members of the Committee:
“The Committee should therefore reject the Government’s amendment, and retain the provision passed by the House of Lords.”
I agree with the hon. Member for North Southwark and Bermondsey that Which? is an excellent organisation. All of us read Which? magazine from time to time. As the Minister rightly keeps telling us, the Bill is about giving consumers a better deal. It is worth pointing out that Which? told me that it does not oppose the inclusion of the Lords amendment in the Bill as a cosmetic reassurance to the legal professions. That might be a touch grudging, but it indicates that Which? does not see any need to remove the current wording.
It is worth having a close look at why the House of Lords made the changes. It did so because it wanted to incorporate in the Bill the statements about the relationship between the board and the approved regulators, which the Government had made in other contexts. We should consider what the Legal Services Board is all about and then examine what the Joint Committee said. It said:
“We believe it is important that the LSB has an effective range of powers, but it is also important that the Draft Bill ensures that they are only used where necessary, in order to avoid undue micro-managing of the approved regulators...The Draft Bill should ensure that—consistent with the Government’s policy that lead responsibility should rest with the approved regulators—the Legal Services Board acts in partnership”
—I like that word “partnership”—
“with the approved regulators, seeking to resolve differences by agreement wherever possible”.
It is also worth pointing out something that the Government said in response to the Joint Committee. My hon. Friend the Member for Enfield, Southgate served on it, as did the hon. Member for Wirral West. The hon. Member for Bassetlaw was not put on it, despite applying, and that was a pity, given his knowledge and experience. The Government’s response was that the LSB
“should...work in partnership with authorised regulators, leaving them with the responsibility for day to day regulation.”
Looking at the way in which the Government responded to the Joint Committee, , I find it strange that they are trying to remove the Lords amendment.
Let us look at the essence of Sir David Clementi’s recommendation. He could have gone for an all-singing, all-dancing unitary system of regulation, rather like the Financial Services Authority. However, he decided not to do that for the simple reason that he took the view that regulation had to be independentof Government. He rightly took the view that the professional bodies were well established, so it would make no sense to build such bodies from scratch, and that it was important to get the professionals in the different parts of the legal services world to buy in to regulation and to secure the maximum good will and confidence in the new system from the word go.
Bearing that in mind, their lordships looked carefully at the measure, and came up with an amendment that I think is workable. It was discussed at great length and road-tested before a number of experts; it was not just put forward on the back of a fag packet. We should be aware that the Minister hinted that it might be possible for the Government to issue further guidance if need be. It is not on for the Government to give guidance to the board; any suggestion of that is a little disturbing. It might be appropriate in some cases for guidance to be given to bodies that undertake what are effectively Government functions, but that is manifestly not the case in relation to the approved regulators. Far from it.

Kevan Jones: Will the hon. Gentleman give way?

Henry Bellingham: I am going to conclude my remarks, because I want to hear what the Minister has to say, and the Government Whip keeps looking at me.
One has also to consider the costs. We do not want the LSB to be a primary regulator or to treat the approved regulators as its administrative outposts. We want it to have a working relationship with them that is based on confidence and trust, not on micro-managing and trying to second-guess everything that they try to do, or laying down detailed templates as to whatthey should do. That is why the Lords came upwith a pragmatic, imaginative, sensible and workable amendment, and the Government should not be trying to remove it at this stage. We will listen carefully tothe Minister, but our inclination is to reject the Government’s amendment.

John Hemming: We are uncomfortable with the Government’s amendment. It does something that we will not oppose at this point, but might come back to later on the Floor of the House.
We always ask to what extent the principles, as defined in the Bill, are enforceable through judicial review. We have issues about the parameters established by subsection (3)(b), because any policy determined by the board can be used as a basis for judicial review under the principle of procedural legitimate expectation. Therefore, the measure has quite a substantial impact on the Bill.
Personally, I am not completely comfortable with subsection (3)(b) because it is a bit too wide. Although we are not happy with the Government amendment, we are not going to oppose it at this stage. We may come back to it on the Floor of the House. It is important to determine the relationship between the LSB and the regulators. This is an important engine house of that process because of the facility to take issues to judicial review under the principle of procedural legitimate expectation. The board needs to have the ability to exercise powers other than in circumstances in which the individual regulators could not reasonably do so.

Kevan Jones: I support the amendment, and I do so for a practical reason that can be illustrated by the miners’ compensation cases. This legislation is taking away the legal services ombudsman. She has been the only person in the current system to have said to the regulatory authorities, “You have got this wrong,” or “You are dealing with cases too strongly.” If the Legal Services Board does not have the ultimate say, or some backstop, to enforce and say to regulators that they are too slow on cases or that they are dealing with them inappropriately, who will stand up for the consumer?
The Bill will take away the legal services ombudsman, but we need to retain that ombudsman’s powers in some form. That is why I support the amendment and the Government’s position. The Legal Services Board has to have that backstop position so that it can ultimately say, “I’m sorry, but you are not doing your regulatory job correctly—get on with it,” sometimes question regulators’ effectiveness and stand up for the consumer. At the end of the day, as the Minister has said on a number of occasions, the champion of the consumer in this Bill will be the Legal Services Board.

John Hemming: I should like to add one other little point. If we maintained the current situation in respect of the Lord Chief Justice and the appointment of the Legal Services Board, I would not want the change at all.

Bridget Prentice: We have established that we all agree that Sir David’s B+ model is the appropriate system for regulating the legal profession, that the approved regulators should be able to get on withthe role of regulating authorised persons and that the board should oversee that. It is important that any provisions that set out those principles do not contradict or lead to confusion about existing principles already set out in the Bill. It is vital that we take care to ensure that amendments are compatible with the rest of the Bill. I think that this amendment is.
Throughout the debates in the House of Lords, peers pressed regularly for provisions that more clearly set out the relationship between the board and the approved regulators. Those threshold amendments were inserted following a vote, and the combination of restricting the board’s powers and the recognitionof the B+ model in policy statements developeda confusion. We have tabled the amendment understanding that it is important to show that the board is an oversight regulator, as opposed to the approved regulators that do the day-to-day work; as the hon. Member for North-West Norfolk rightly said, the board does not micro-manage what is going on.
The hon. Member for Birmingham, Yardley makes an important point about subsection (3)(b). That causes problems because it sets a threshold, a Wednesbury test, that is too difficult for the board to achieve. It also adds further confusion. The test is difficult to meet and as a result, it could be difficult for the board to take appropriate action. It is important that we take that bit out.
I hope that the Committee feels able to support the amendment, which has been drafted in good faith. It tries to achieve what the other place was asking for, but in a way that is compatible with the rest of the Bill and clearly sets out the role of the oversight regulator, as opposed to that of the approved regulators doing their day-to-day work. On that basis, I ask the Committee to agree to the amendments.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 5.

Question accordingly agreed to.

Clause 49, as amended, ordered to stand part of the Bill.

Clause 50 ordered to stand part of the Bill.

Clause 51

Control of practising fees charged by approved regulators

Henry Bellingham: I beg to move amendment No. 251, in clause 51, page 28, line 4, at end insert—
‘(2A) Practising fee income shall be kept separate from the other assets of a regulator.’.
This is a very simple amendment. As lawyers would say, “Res ipsa loquitur”; it speaks for itself. There are arguments for different types of income to be kept separate. The Institute of Trade Mark Attorneys provides an illustration of the problems that could arise in any recovery of the levy. It is a private body, limited by guarantee, which performs regulatory and non-regulatory functions. If a levy can be recovered against all their assets, it would mean that the assets of the business, including income and capital assets derived from non-regulatory and represented sources could be vulnerable, even though as a regulator, the institute and its members are precluded from realising any financial benefit from any other regulatory activity.
The result could be private persons or businesses who are expected to guarantee a levy to the state with no possibility of a corresponding benefit. Therefore, I would argue strongly that it is only reasonable thatthe recovery of a levy should be limited to funds ring-fenced as provided in the amendment.

John Hemming: The facts may speak for themselves in a legalistic sense, but I am not sure that they do in an accounting sense. I cannot understand why it is trust money and requires to be accounted for separately. I do not see how that can be, as under insolvency law, for example, one cannot merely keep that which has been received unless trust status is created for it, which cannot be done just by keeping it separately in a bank account. At the end of the day, the objective is to say that if the levy is £1 million and the income is only £900,000, the £900,000 does not get paid. The reality is that that amount would be secured against the organisation’s other assets, so I cannot see how it is of any advantage to anyone, or that it achieves the stated objectives.

Bridget Prentice: The hon. Gentleman makes a very good point. It would be wrong in any legislation to restrict how moneys owed may be recovered. In that sense, we are being consistent with general legislative practice.
I understand why hon. Gentlemen might want assurances that the funds raised for representative functions are not used for regulatory ones. However, I cannot agree that the statute is the place to put an absolute requirement on approved regulators to ring- fence income derived from practising fees.
There are also a number of problems in putting an absolute duty on approved regulators in this way. There are also a number of problems in putting an absolute duty on approved regulators in this way. First, some flexibility is necessary in the way in which they set out their financial arrangements, and what might be right for one regulator might not be appropriate for another. For example, the amendment does not take accountof approved regulators who exercise only a regulatory function and do not operate in a representative capacity, such as the Council for Licensed Conveyancers. It would be unnecessarily restrictive to limit their financial arrangements in this way.
Some aspects of the practising fee income could be relevant to both regulatory and representative sides of an approved regulator. Clause 51 states that fees can be raised for the purpose of
“the promotion of the protection by law of human rights and fundamental freedoms”
and for
“the promotion of relations between the approved regulator and relevant national or international bodies, governments or the legal professions of other jurisdictions.”
 Obviously, those activities benefit the approved regulator as a whole, and any distinction between regulatory and representative income becomes rather arbitrary. For that reason, I hope that the hon. Gentleman will withdraw his amendment.
The amendments are not appropriate, and it will be for the board to consider the internal governance rules as outlined under clause 30. Any concerns that the hon. Gentleman may have will be dealt with under that clause.

Henry Bellingham: I am grateful to the Minister, because we do not want to do anything that she deems to be inappropriate to her Bill. She has given a good explanation, and on that basis I beg to ask leave to withdraw the amendment.

Nicholas Winterton: How agreeable.

Amendment, by leave, withdrawn.

Clauses 51 ordered to stand part of the Bill.

Clauses 52 and 53 ordered to stand part of the Bill.

Clause 54

Regulatory conflict with other regulatory regimes

Henry Bellingham: I beg to move amendment No. 258, in clause 54, page 30, line 21, at end insert—
‘(1A) An approved regulator must consider any request made by an external regulatory body for the approved regulator to reconsider any provision made by its regulatory arrangements on the grounds that the provision either—
(a) conflicts with a requirement of a regulatory provision made by the external regulatory body, or
(b) unnecessarily duplicates any regulatory provision made by that external regulator.’.

Nicholas Winterton: With this it will be convenient to discuss amendment
No. 252, in clause 54, page 30, line 27, at end insert—
‘(2A) An external regulatory body may make an application to an approved regulator under this section if it considers that the arrangements of the approved regulator—
(a) frustrate the exercise of the external regulatory body’s requirements, or
(b) conflict with the external regulatory body’s regulatory requirements, or
(c) give rise to unnecessary duplication of regulatory requirements for the subjects of the external regulatory body.
(2B) For the purposes of subsection (2A)(c) above, “subjects” means any individuals or entities subject to the regulatory powers and jurisdication of the external regulator.
(2C) Where an application is made to an approved regulator under this section, the approved regulator must—
(a) determine whether such regulatory conflict exists with the external regulatory body’s requirements and, where it so determines, take such steps as are reasonably practicable to address the regulatory conflict outlined by the external regulatory body, or,
(b) in the absence of satisfactory resolution and where provisions for the resolution of external regulatory conflict provide, make an application to the Board under subsection (4).’.

Henry Bellingham: Amendment No. 258 would bring parity to the different forms of conflict that an approved regulator might face, either with external regulators or with approved regulators. That is why it is important.
Amendment No. 252 would simply add to and complement that. I shall not go through it in detail, because the Minister will have had a technical briefing on it. It was tabled as a probing amendment in the House of Lords. We did not receive a satisfactory response at the time, and I would like the Minister to say either that she can accept it because it improves the Bill and the clause, or that she cannot accept it and give and give an explanation for that. I look forward to hearing what she has to say.

John Hemming: These are reasonable amendments, which we support.

Bridget Prentice: As the hon. Member for North-West Norfolk said, these amendment are similar to amendments that were tabled in another place. We agreed there to reflect on the initial suggestions put forward. I say to the hon. Gentleman that, having reflected, we do not believe the amendments would do much to alter existing policy on regulatory conflict, except perhaps risk inviting undesirable interpretations of how the obligations on approved regulators should apply.
I am sorry that I will disappoint the hon. Gentleman again, but that is not to say that I do not sympathise with the objectives behind the amendments. I agree that it is essential for the Bill to do all it can to facilitate co-operation between regulatory bodies when a range of professionals work together, and that robust procedures for dealing with regulatory conflicts are a key part of that. The clause is effective enough to achieve that, and no evidence has arisen since it was debated before to persuade me otherwise.
I realise that the provision is not the same as that being made in relation to conflicts between two approved regulators. Given the different legal contexts, it is neither possible nor appropriate for it to be the same. Clauses 52 and 53 impose detailed and specific mutual obligations upon approved regulators, in particular requiring them to consider requests from regulated members to consider any specific regulatory arrangements that might create conflict and to submit to the direction of the board in the event that it identifies a need for any particular arrangement to be altered.
It is not possible to translate those principles into the context of clause 54, mainly because it would not be within the scope of the Bill to seek to impose obligations upon regulators of non-legal services or require them to submit to the jurisdiction of the board. They can of course do that voluntarily, and the clause recognises that, but only to the extent that it is compatible with other legal and regulatory obligations to which external bodies are subject. The clause therefore relies entirely upon the efforts of approved regulators for its efficacy. That is appropriate given the aims and scope of the Bill, and I do not want to amend it in a way that could risk uncertain and overly onerous impositions on approved regulators.
The clause already imposes clear duties on the approved regulators to have regard to other regulatory regimes. They are required not only to take measures to prevent regulatory conflict and avoid unnecessary duplication of regulatory requirements but to provide for the resolution of conflicts that do arise. That does not only apply when the initial rules are drafted, it is a continuing obligation that should inform all current and future regulatory arrangements. That combination of requirements goes a long way towards achieving the outcome sought in the amendments.
In some respects the clause goes a bit further than clause 52. The duty to avoid unnecessary duplication is unique to clause 54 and intended specifically to target issues that might arise in relation to external regulatory conflicts and give effect to general principles of better regulation.
The amendments would not assist in encouraging better regulation or preventing regulatory conflict. At worst, they could exacerbate conflicts and increase bureaucracy. They would apply a further statutory burden to the approved regulators not only to address conflicts with external regulators but to take action formally on any applications about specific instances, no matter how numerous and whatever their merit or relevance. That could increase the pressure on approved regulators to be overly assiduous, to avoid the possibility of legal challenge if they fail properly to consider every approach made by an external regulator. It would have the undesirable effect of diverting substantial resources from both the approved regulators and the board into handling those requests when they could be more productively engaged in ensuring that their own rules take a robust and consistent approach to pre-empting conflicts, and dealing effectively with overlapping regulatory regimes. 
On that note, clause 54 as drafted has achieved about the right balance between ensuring that the approved regulators are obliged to take a proactive approach to dealing with external regulatory conflicts, but not to create an undesirable and potentially burdensome duty on themselves in so doing. I therefore ask the hon. Gentleman to withdraw his amendment.

Henry Bellingham: I am grateful to the Minister for her explanation. I shall consult the interested outside bodies that take seriously the whole issue of regulatory conflict with outside regulatory regimes. It is important to make sure that the right relationship is achieved. I take on board the hon. Lady’s point about part of the amendment being outwith the scope of the Bill. After consultation, I shall come back to her on Report,if necessary. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 54 ordered to stand part of the Bill.

Clause 55

Provision of information to the Board

Henry Bellingham: I beg to move amendment No. 253, in clause 55, page 31, line 6, at end insert—
‘(d) shall give a reason and explanation for such notice.’.
The amendment is simple. Subsection (2)(c) states that a notice
“may require any information to be provided, or document to be produced, to the Board or to a person specified in the notice”,
If a person receives the notice, I believe that a reason should be specified for such action. Such a probing amendment was introduced in the other place. We did not consider that it received a sympathetic response, which is why we are re-running it. I should be grateful if the Minister could now look sympathetically at the proposal because it would make clearer what the Government are trying to do and it would be fairer to all concerned if they would accept it.

John Hemming: We have added our names to the amendment so obviously we support it. Much of the proposal rests on the nature of the relationship between the Legal Services Board and the individual regulator. I agree with the hon. Member for Bassetlaw that this country has seen several examples of the failure of self-regulation, but the system under the Bill brings in a relationship that warrants being carried out professionally and reasons being given for action that is taken.

Bridget Prentice: I understand what the hon. Member for North-West Norfolk is trying to achieve with the amendment. My initial reaction is that it is unnecessary because the board already has a duty to have regard to best regulatory practice, including transparency. Any notice that properly follows best regulatory practice would have a reason and an explanation attached to it.
I remind the hon. Gentleman that public law principles require reasons to be given in any event, so I am not hugely convinced that the amendment is necessary. However, I am happy to consider it further on the basis that the principles of transparency are important. Perhaps we can discuss it later to see whether I can convince him that the clause covers all bases, or whether it needs to be amended to make it even clearer.

Henry Bellingham: The Minister has been most sympathetic and understanding. I am grateful for her remarks. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 55 ordered to stand part of the Bill.

Clause 56

Enforcement of notices under section 55

John Mann: I beg to move amendment No. 281, in clause 56, page 31, line 31, at end add—
‘(4) Without prejudice to subsection (2) the Board may, in exceptional circumstances and as a temporary measure, issue an order requiring the approved regulator to comply with the notice or with such directions as would have been contained in the order had a successful application been made.’.
This is a small amendment to assist the Minister in her objectives, and an important one for her to consider. Such circumstances do arise. If we rolled back the clock five or six years and introduced the Bill at a more timely point at the start of the new millennium, the power may well have been of use.
The explanatory statement points out that the amendment
“provides for occasions on which the Board’s power of enforcement proves inadequate, including when it is clear that the failure by an approved regulator to comply with a notice of direction will result in continued adverse impacts on consumers.”
Situations do occur in which action is required and it is being argued whether such action should be taken. Allowing the ability to challenge and re-challenge any direction given might allow those who have done wrong the opportunity to lose files, or delay cases until people who are severely ill become more ill or indeed die.
Such cases might occur, as with industrial diseases. We have seen changes in the law on mesothelioma, an industrial disease. That is perhaps the best example, as it has a remarkably short life expectancy. All that the amendment seeks to do is to give the ability in such exceptional situations to ensure that things move on while they are being debated and finalised, so that justice does not disappear due either to the complainant’s health or to the vanishing of key files while things drag on in the High Court.

John Hemming: This is not an amendment that the Liberal Democrats can support. It shows a certain amount of confusion about how to enforce the legislation. I do not think that the hon. Gentleman was necessarily talking about the idea that it might become a criminal offence to disobey the legal services, but the difficulty then becomes how to enforce the proposed measures. One would have to apply to the High Court for an order. Failure to comply with that order would be contempt of court and enforced accordingly, so if the Committee passed the amendment, we would not be getting anywhere, as it will be possible in practice to go to the High Court quickly if that is required. The files to which the hon. Gentleman referred would probably be held by an individual firm, not a regulator.
I agree that there have been situations in which self-regulation has failed, and that there needs to be pressure on regulators such as the General Medical Council to do their job properly. Judicial review has been used to enforce that on the GMC—a court order is obtained, and the GMC obeys—but that is not the sort of thing that happens within the time scales that the hon. Gentleman is thinking of. To that extent, the amendment is misguided.

Bridget Prentice: I understand entirely why my hon. Friend has tabled the amendment. It is to ensure that the board is able to regulate effectively. However, I agree with the hon. Member for Birmingham, Yardley. The amendment is disproportionate and, more importantly, not compliant with the European convention on human rights. I obviously cannot accept an amendment that is not ECHR compliant. On that basis alone, I will have to ask my hon. Friend to withdraw his amendment. It is right that the magnitude of power that he seeks here is the subject of judicial scrutiny. It would be entirely inappropriate to leave the exercise of a High Court power to the discretion of the board. The power here pre-empts the courts in a way that would allow that.
On that basis, I am afraid that I cannot accept my hon. Friend’s amendment. Also, I would suggest to him gently that the term “exceptional circumstances” is not clear enough for statute. It leaves too much open to interpretation. I do not think that it is clear enough to guarantee that the rights of the approved regulator would be protected, either under articles 6 or 8 of the European convention. On that basis, I would ask my hon. Friend to withdraw his amendments.

John Mann: I hear what the Minister says andfeel the level of incredulity from the Liberal Democrats—or Whigs, as they are known these days. I must have missed something. Some of my constituents have been waiting 18 months—and nearly two years in one case—for the Solicitors Disciplinary Tribunal to meet to consider their cases. Clearly, the regulator, if instructed to get on with that, would be unable to comply. There are some wider issues involved. Perhaps the Minister might write to the Committee about when the Solicitors Disciplinary Tribunal will meet and where the power then lies. That is precisely what my constituents and others who are waiting in the Rayleys case want to know. One of my constituents, Mrs Beckett, is sadly no longer with us and it is 18 months since I attended her funeral. She is one of those who did not see justice. Others, who are extremely unwell, are still waiting to have their say in court. Therefore, this is not a minor issue.

Simon Hughes: Again, I am very sympathetic tothe problem that the hon. Gentleman describes. We understand the issue; the question is whether it is the right amendment. Has the hon. Gentleman taken advice from people whom he can trust to do a good job to find out whether there is any scope in serving a court order, such as the order of mandamus, on the disciplinary tribunal to speed things up? Long delays in investigations is a regular problem.

John Mann: The fact that all sorts of tactics have been applied unsuccessfully shows that justice will not be done or be seen to be done for my constituents.

Kevan Jones: Does my hon. Friend agree that the comments made by the hon. Member for North Southwark and Bermondsey demonstrate just what Committee members have not grasped. People such as my hon. Friend’s constituents have not got either the legal know-how or the resources to go through this very expensive legal system.

John Mann: As my hon. Friend well knows, a disproportionate number of people give up because they feel intimidated by the process. As I am not a lawyer, I will bow to the Minister’s advice that the amendment might not do exactly what I intend. However, I will leave her to consider the following question along with the subject of the Rayleys cases and the Solicitors Disciplinary Tribunal: how will the Bill create justice for that group of individuals? With that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nicholas Winterton: It appears to me that we could dispose of the business up to clause 62 as there are no amendments. Would the Committee be happy if at that stage I suspended the Committee for an hour? I feel a need for some refreshment and I am sure that the Committee has a similar feeling after more than three hours of debate.

Clauses 56 to 62 ordered to stand part of the Bill.

Sitting suspended.

On resuming—

Nicholas Winterton: I congratulate members of the Committee on getting back by zero hour. I just managed it. I took the stairs, and my heart is showing the result of that endeavour.

Clause 63

The Board’s designation under section 62(1)(a)

Simon Hughes: I beg to move amendment No. 226, in clause 63, page 35, line 4, at end insert
‘and, in either case, no other approved regulator is suitable and willing to regulate the activity in question.’.
The amendment deals with whether the Legal Services Board should regulate legal services and, if so, in what circumstances. The proposal is that it should do that only as a last resort and if there is no other regulator that could do the job. This is all to do with the back-up provision in the Bill that says, in effect, that there should be regulators for the different legal activities but that, in exceptional circumstances, the big regulator—the LSB—can do the regulating.
When the Minister and I were serving on the Compensation Bill, we discussed what sort of regulator there would be. In that context, the decision was taken that a civil servant would be the regulator on behalf of the Department, so that the Department became the regulator for the time being. I stand to be corrected, but I believe that that is what was agreed.
As an interim arrangement, knowing that coming down the track was the Legal Services Bill, the Government gave an express undertaking that, after that Bill became an Act and the regulatory systems were set up, a further transfer of regulatory responsibilities to the authorities would occur under this Bill. In essence, that was a provision for the Big Brother regulator of last resort to do the job for the time being, and the amendment relates to it.
The amendment is to subsection (4) on page 35, which is about the designation order and states:
“The order must ensure that the Board, acting as an approved regulator, may make regulatory arrangements or modify its regulatory arrangements only with the approval of the Board”.
To it would be added the words:
‘and, in either case, no other approved regulator is suitable and willing to regulate the activity in question.’.
In effect, the amendment states that, if somebody is there, give them the job; if not, the provision would come into force. I shall say just a few words about the logic of that position.
Throughout the discussion of the Bill, the Government have made it clear that they intend the lead role in regulation to rest with the existing professional bodies. There will be an interim handover phase, and the LSB will therefore be the supervisory body—the safety net. The logic behind the Bill is that the board would intervene only when necessary. That is the view being subscribed to, and there is a discussion about the theology of the words. The board will be the regulator of last resort.
The Government have provided, however, that they may occasionally move the board from being a back-row regulator to being a front-line regulator of temporary resort. That is fine. I can completely understand and subscribe to that idea. It would be unacceptable for professionals out there in the field to be unable to do their jobs because no regulator was in place, and the measure is intended to fill that gap. It is conceivable that a regulator might regulate badly and must therefore be prevented or suspended from regulating, and it would then be entirely reasonable for the Government to step in. So, yes, it is acceptable, reasonable and inevitable that they should have that power.
However—I hope that the Minister will come with me down my next line of argument—the logic ofthe amendment is that it is important to keep clear the distinction between the approved regulators andthe LSB, which is the regulator of last resort, so that the board should adopt that intervening regulatory role only when there is no alternative. When a regulator loses its approval or when a new service becomes regulated, theoretically—for example, will writing, which we discussed the other day, might become regulated—it is important that the board should first consider whether an existing regulator should dothe job.
We discussed this issue in our debates on the Compensation Bill, and I remember, almost verbatim, the Minister saying then that it was right to consider whether an existing regulator should do the job. By and large, we have far too many regulators in society, and there is far too much regulation, so we do not want to create more unnecessarily. If we are to have regulation, it is far better that a body that already exists and has a structure, support staff, an office and systems in place should take on the job. That is what the amendmentis about.
My final point is that the board should intervene only when it has looked around the field, seen who is there and concluded that nobody else can do it. Only then should it say, “We are going to look after this for the time being.” That is right in principle, and I hope that it will happen either never or extremely rarely. The idea is that another regulator should always be used. Of course, Ministers will not want a super-regulator,or obergruppen regulator, to force regulation on regulators that do not want those responsibilities. It is no good simply saying, “You will do it.” We also discussed this issue in our Compensation Bill debates, and I remember that the Financial Services Authority was thought to be one option, but it was not keen to do it and said no.
Clearly, it would be inappropriate to make a regulator take on responsibilities if, after discussion and negotiation, a regulator said, “We’re really sorry, but we don’t think that this is up our street; we don’t think that we should do it.” Of course, in theory, someone would have the power to make it, but that would not be a very happy arrangement.
We propose that it should be made absolutely clear that the LSB must look around to see which regulatory bodies in the field could do the job. Only if there is none should it seek designation from the Lord Chancellor to do the job. I hope that that is clear,and that the Minister will be sympathetic to our amendment.

Henry Bellingham: I rise to support the amendment, which my hon. Friends and I have signed. The hon. Member for North Southwark and Bermondsey has explained it extremely effectively, and I shall not addto his comments, except to say that we support it100 per cent.

Bridget Prentice: I assure the hon. Gentlemen that I fully endorse the objectives behind the amendment, but the Bill already takes account of those principles; they are already included. We certainly do not intend that the board should compete with approved regulators.
The procedures and criteria in clauses 62 and 63 will enable and encourage the board and the Lord Chancellor to evaluate viable alternatives, offeredby existing approved regulators, when considering whether an order under clause 62 is appropriate. The hon. Member for North Southwark and Bermondsey rightly raised the possibility of a new reserved activity—will writing is an obvious example of one that might be considered. Clause 63(2) makes clear the limited circumstances in which the order can be made: where a body has been de-authorised or there is a new reserved legal activity. I think that that makes it clear that the board can regulate directly only to prevent a regulatory vacuum. He is right to make a comparison with what we did in the Compensation Act.
Finally, I am confident that clauses 62 and 63, when taken with all of the other provisions in the Bill, will ensure that the board’s ability to act effectively as an approved regulator is constrained sufficiently, none of which can happen unless an order has been approved by both Houses. That militates against the board thinking that it can jump in and regulate new activities willy-nilly; it must look at what is available already. That makes good economic sense, as well, as the hon. Gentleman said. We have already a regulator up and running that has all of the attributes needed to carry out the regulation, so it is unnecessary to do anything other than that. On that basis, I ask him to consider withdrawing his amendment.

Simon Hughes: I am grateful to colleagues for their support and to the Minister for her courteous reply. She reminded us of the backdrop provision, which is that any such change would require the authority, by order, of both Houses. That is an important backdrop and might give the protection and the cover needed.I am happy to think about that and perhaps be persuaded. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 63 ordered to stand part of the Bill.

Clauses 64 to 70 ordered to stand part of the Bill.

Clause 71

Carrying on of activities by licensed bodies

Question proposed, That the clause stand part of the Bill.

Simon Hughes: I might have to revise my tacticsand sign up to more amendments in the name of the hon. Member for Bassetlaw, who did not move his amendment No. 282. I shall treat them with more interest for fear that we get such surprising timidity in proposing yet more good ideas. The idea in the amendment was a good one, but, if I remember the rules correctly, the fact that it has gone will not prevent me from discussing the wider issue to which it referred.
We now move to part 5, of which clause 71 is the first clause. It is fair to say that part 5 was the most controversial part in the House of Lords. Right up to the very end, up to the debate on Third Reading, when amendments can be considered in the Lords, there were amendments concerning the issues before us. Clause 71 is the first clause of a significant part, which goes up to clause 111 and deals with the alternative business structures—a substantially new concept.
Every member of the Committee and many people following our proceedings will know about the alternative business structures, so I shall not extend the explanation at length. However, in lay terms, the basic proposition is that, in addition to the simple and traditional legal organisations, such as solicitors firms, it will be possible in England and Wales to create bodies that have the rather mundane title of alternative business structures. They will either be multidisciplinary or involve different groups in the legal profession coming together to offer services.
Alternative business structures were described in a clichÃ(c)d way as the sort of business that might be promoted by one of our larger high street supermarkets. It is certainly true that large high street supermarkets sell not just food and drink, as they originally did. Indeed, they sell not just food, drink and clothes; not just food, drink, clothes and children’s toys; not just food, drink, clothes, children’s toys and electrics—the list could go on. If one queues for any length of time at a checkout, one will see various leaflets offering all sorts of other services, such as travel insurance and holiday insurance.
The concerns are that, if part 5 is enacted andit becomes possible to licence ABSs, which is what clause 71, the introductory clause that permits the
“Carrying on of activities by licensed bodies”,
is about, the new species of bodies—multidisciplinary bodies—might be sufficiently well resourced and supplied in capital and financial terms to go into the traditional legal providers’ market and, because of the macro-economic cost-benefits, offer their services at a lower price, thus undercutting existing services, not just competing on price but causing difficulties, and forcing some of them out of business. It is a bit like the debate about the supermarket and the corner shop.

Adrian Bailey: Does the hon. Gentleman not agree that, in a competitive market environment, organisations that can compete on price often expand the market for their product? At the end of the day, if we are putting consumers at the heart of the Bill, will not the provision be a logical extension of that principle?

Simon Hughes: I have not yet expressed a judgment about the issue. I have so far expressed the argument, which is why the issue is controversial, why it was controversial in the House of Lords and why there is a great deal of interest in it. The answer to the hon. Gentleman’s question, which is also the next logical issue to deal with, is that the arguments are pro-competition, an idea to which I am sympathetic.
The question is whether we allow entirely deregulated competition, which the Bill does not propose, or a form of regulated competition. With the Competition Commission and the Office of Fair Trading, we have a balanced position. Competition is permitted, but there is control, so that people do not acquire too much market share and exercise undue influence.
The issues that arise are how we go from the present position to that which the Bill would allow without threatening the destruction of the sort of services that many hon. Members on both sides of the House regularly complain about in a different context. Downstairs and in Committee, hon. Members bemoan the fact that there are not nearly as many sub-post offices or post offices as there were. In a competitive world, other people are coming in and providing alternatives, such as firms from the Netherlandsand elsewhere providing business deliveries, and organisations such as banks dealing with pensions.
There is competition, but that has not stopped people saying that there is a significant reduction in service for local communities, and it has resulted in many communities losing services. Post offices have gone and an alternative service that people might have liked has not replaced it. That is the debate. In this context, the debate is about how to manage transition, if that is the right way to go, so that good, high-quality outlets—in this case for legal services—are not destroyed in a way that allows a predator in the market not just to be competitive, but to be competitive in a way that destroys alternative valued local providers. That is the issue. The hon. Member for Bassetlaw’s amendment No. 22 addressed how we get from here to there, and that is a proper issue to address.

Adrian Bailey: With the greatest respect, I do not feel that the hon. Gentleman’s comparison is valid in terms of the perception that elderly and deprived peopleare queuing outside their lawyers as a result of competition. To suggest that those facilities are being removed is far from the truth. The irony is that although competition is causing difficulties for post offices, for law firms and solicitors it provides the opportunity to open up new markets.

Simon Hughes: The hon. Gentleman is entitled to take an absolutist view and may be entirely supportive of the Government’s proposals, but that was not the view of the pre-legislative scrutiny Committee, which was concerned about the move from A to B, as he knows. It is not the view of many other people, not all of them lawyers, as he also knows.
I accept that the situation for post offices and lawyers may not be parallel, but in small towns there may be only one legal firm of general competence that has been there for a long time, or a couple of firms that have a good reputation and are well regarded by the community. Of course there will not be queues as there are outside post offices, but there will be a regular procession of clients, who are local people and often without much money, going to see their lawyer if there is a dispute with a neighbour, or a commercial dispute concerning conveyancing, wills, contracts, complaints about holidays that went wrong, and so on. The question is: what is the risk to those firms?

Bob Neill: I do not want to prolong our proceedings, but does the hon. Gentleman accept that his concern is reinforced by the Government’s proposals elsewhere to restructure legal aid contracts, which will have the effect of creating monopoly contracts in some areas? If the Government choose to create monopoly suppliers in geographic or sector-specific areas, it is all the more important to provide some protection.

Nicholas Winterton: Order. I allowed the hon. Gentleman to make his point, but I trust that the debate will not expand into legal aid.

Simon Hughes: I shall try not to be led far down that road, Sir Nicholas.
The competition issue, which is central toclause 71—I was rebuked for not having an exact parallel when I talked about post offices—has a better comparison, as the hon. Member for Bromley and Chislehurst reminded us, in the context of legal aid. I will leave it at that, but there are parallels and there is an interlinking between the two.
As we go through the following clauses and look at the licensed bodies that will be defined in clause 72, and when we consider the Minister’s amendments—her largest batch so far—I hope that all members of the Committee, no matter what their starting point is, will remember the wisdom of the pre-legislative scrutiny Committee’s advice. We say that we like that part of the process and that it is important. In that case, we should listen to what it recommends. It was very cautious about going helter-skelter down this road. It was not happy with the speed and the pace which the Government propose.
There will be other amendments such as the one originally tabled in this context for a graduated, gentle, considered, cautious, delayed implementation. I hope that the Committee will be sympathetic to them. Obviously, in Committee one cannot and should not seek to take out a whole part of a Bill. We deal with it clause by clause. I will not seek to remove one of the clauses in the next group of 40, or 10 of the clauses as we come to each of them. That would be an unjustified use of the processes open to me. If the Government are to have their way, it is far better to ask whether the clauses are the right ones and are well written. However, I reserve the right, as do my colleagues, to say either that this part of the Bill is inappropriate, or that it is inappropriate if it is amended as the Government wish and is put back into the position it was in before the amendments were passed by the Lords.

Jonathan Djanogly: It would be fair to say that in the other place the Liberal Democrats and the Conservatives supported each other on most aspects of the Bill. It was perhaps on part 5 where we to some extent parted company. Having heard the hon. Gentleman just say what he said, I think that it is likely to be the case here. As he said, part 5 is about alternative business structures. Our debates over the following clauses will be slightly complicated by the fact that many of the concepts at the lower end of the risk scale—LDPs and Legal Practice Plus—have already been reviewed at clause 18. Therefore, it will be quite difficult not to repeat arguments, but I will try my absolute best.
The problem is that it is easy in many ways to lump all ABS structures together. Our position is that both LDPs and Legal Practice Plus—that is, partnerships with non-client-facing professions—should not be treated as ABSs. There is then the question of the timing of expanding the concept to include non-legal support professionals who act for clients. That would leave the ABS rules finally to cater for involvement by non-professionals in the provision of legal services. That is clearly where the greatest risk lies and where caution and therefore delay is most required and justified.
We shall come on to the safeguards, which we shall be defending against the Government amendments. I suspect that we shall tread together with the Liberal Democrats on that one. However, by building in delay for the simplest low-risk structures between well-regulated professionals, we are missing a unique opportunity to realise early benefits for consumers and business in certain markets. One example is the market for advice to small business.
In 2006, the Institute of Chartered Accountants found that 58 per cent. of small businesses went separately to both lawyers and accountants for general business advice. It is important to appreciate that we are not just talking about very large law and accountancy firms. We are talking about smaller firms as well. There will certainly be smaller firms that could benefit, such as the high street solicitor that is struggling now, but that could become more efficient, customer-friendly and stable, by joining up with a small accounting practice.
Allowing such professionals to come together more easily could cut costs, increase choice and competition and reduce the time needed to forge relationships with different advisers. To the extent that it offers new business opportunities for small or rural legal practices, it will support rather than undermine access to justice. Another example in the individual consumer market is allowing chartered surveyor and legal practices to come together to reduce delays and transaction costs. I have said all that I want to say at this stage, but I hope that the tone that I have set reflects where my party is coming from on this part.

Bridget Prentice: I promise my hon. Friends that I shall not speak for very long on this part. The alternative business structure is an important part of the Bill. It offers innovation, creativity and greater choice for the consumer. I hope that the Committee will welcome it. It is the part that the consumer panel in my Department and consumer organisations are keen to see implemented, although that will not happen until 2010-11. We had a bit of a debate earlier about possible opportunities between now and then for other professionals to work with lawyers, and I am looking into whether there is any scope for that to happen without undermining part 5 of the Bill.
I understand what the hon. Member for North Southwark and Bermondsey says about ensuring that people do not cherry-pick activities. That will be part of the board’s remit when it decides who will be licensed under this part of the Bill. There will be opportunities throughout the debate on this section for us to consider some of the issues in more detail. Suffice it to say that clause 71 provides for the licensing of bodies as alternative business structures.
I hope that the debate will cover some of the details and reassure hon. Members who are concerned about whether certain organisations will come in and distort the market. We certainly do not want the market to be distorted; that will not allow for the sort of consumer choice that is at the heart of this part of the Bill.

Question put and agreed to.

Clause 71 ordered to stand part of the Bill.

Nicholas Winterton: Before we move on to the debate on clause 72, which will involve a large number of Government amendments, I can tell the Committee that I understand that the usual channels have indicated that they wish to get to the end of clause 82 this evening. I am advised that there might be a Division at about 9 o’clock. I merely provide that information for the benefit of the Committee. I am prepared to stay here all night; I take my job seriously, and I believe that the Committee has done, is doing and will do throughout its remaining sittings onthe Bill.

Clause 72

“Licensable body”

Bridget Prentice: I beg to move amendment No. 111, in clause 72, page 41, line 10, leave out subsections (1) and (2) and insert—
‘(1) A body (“B”) is a licensable body if a non-authorised person—
(a) is a manager of B, or
(b) has an interest in B.
(2) A body (“B”) is also a licensable body if—
(a) another body (“A”) is a manager of B, or has an interest in B, and
(b) non-authorised persons are entitled to exercise, or control the exercise of, at least 10% of the voting rights in A.
(2A) For the purposes of this Act, a person has an interest in a body if—
(a) the person holds shares in the body, or
(b) the person is entitled to exercise, or control the exercise of, voting rights in the body.
(2B) A body may be licensable by virtue of both subsection (1) and subsection (2).
(2C) For the purposes of this Act, a non-authorised person has an indirect interest in a licensable body if the body is licensable by virtue of subsection (2) and the non-authorised person is entitled to exercise, or control the exercise of, voting rights in A.’.

Nicholas Winterton: With this it will be convenient to discuss the following Government amendments: Nos. 112, 134 to 137, 139 to 143, 113, 144 to 183, 114, 118 to 125, 185 to 190, 192 to 201, 203, 204 and 191.

Bridget Prentice: I agree with you absolutely,Sir Nicholas. I shall be happy to stay here all night if necessary. Only a few of us remember the times when we sat through the night in Committee. Those were the days, and good fun was had by all.
This is a fearsome list of amendments, but they are relatively straightforward. They refine the ownership provisions in part 5 and schedules 16 and 17 to provide more clarity on how firms and companies with complex ownership structures will fit into the ABS or recognised body regimes, as well as on whether non-lawyer owners and managers will be subject to the fitness-to-own tests. They also contain a number of related and consequential changes to other provisions. They do not depart from existing policy on non-lawyer ownership, but they do provide essential refinements to ensure clarity in complex corporate structures.
The group contains amendments to the non-lawyer ownership and related provisions in part 5; to the ownership provisions in schedule 13, which contains the fitness-to-own test, and to the ownership and related regulatory provisions for recognised bodies in schedules 16 and 17 to ensure that there is no overlap with part 5.
The principal change to which the other amendments relate is the revised clause 72 proposed by amendment No. 111. The clause provides that a body will be a licensable body if it has any managers who are non-authorised persons, but it will now contain a refined ownership test that clarifies how the test will apply to complex corporate structures. Proposed subsections (1)(b) and (2A) provide that a body will be licensable if any non-authorised person holds shares in it or is entitled to control voting rights in it. As before, the concept of shares is wide enough to cover notonly companies but limited liability partnerships, partnerships and other unincorporated bodies. Proposed subsection (2) provides that a body shall be licensable if one of its managers, shareholders or persons with voting rights is itself a body and one or more non-authorised persons hold 10 per cent. or more of the shares or voting rights in that second-tier body.
The new formulation provides greater clarity and consumer protection than the existing clause 72 in relation to the many and varied types of structure that may be used to deliver legal services. In particular, it will ensure that loopholes do not arise because of complex structures, for example in bodies with multiple corporate tiers. A number of related and consequential amendments, including those to schedules 11 and 12, are necessary to reflect that change. That includes provisions that refer to or impose obligations on non-lawyer owners, such as the low-risk body provisions in clauses 106 and 108, and to the provisions in clause 90 setting out the duties of non-authorised persons. In addition, the definition of a “non-authorised person” in clause 111 is amended to ensure that the treatment of foreign lawyers and international legal services firms, particularly those with complex corporate structures, is consistent with the amendments to clause 72.
There are a number of related amendments to schedule 13, which deals specifically with the regulation of non-lawyer owners. Many of them reflect our changes to the concept of interest in a body and the distinction between voting rights and the wider concept of voting power, which is defined in paragraph 5 of the schedule.
The third main area of change is amendments to the terms of the ownership test for recognised bodies regulated by the Law Society and the Council for Licensed Conveyancers, as well as related regulatory provisions. The amendments to the definitions of terms such as “licensable body” and “shares” reflect the changes to clause 72. They maintain our policy that the categories of licensable bodies in part 5 and bodies that may be recognised by the Law Society and the CLC are mutually exclusive.
The amendments will create greater certainty and identify the boundaries between regulatory regimes for ABS firms and other authorised bodies. They will also provide greater clarity in setting out how and when the different provisions in the Bill regulating owners will apply to specific individuals and firms. On that basis, I recommend them to the Committee.

Jonathan Djanogly: Clause 72 tells us what is a licensable body. The Government’s amendments to it are technical in nature and are intended to ensure that the controls on the fitness to own are fully effective, particularly in relation to what constitutes an interest in a body. That is acceptable to us.
Will the Minister confirm that in amendmentNo. 111, for the purposes of the proposed subsection (2A), the words
“holds shares in the body”
will include the holding of a beneficial interest as well as a legal one? Where is that defined?

Simon Hughes: There seems to be a move in the right direction, but I have two general questions and one specific one.
First, what prompted the tabling of the amendments at this stage? Was it debates in the Lords, particular representations, or an awareness that there was a technical defect in the drafting in respect of interest? I can see that an attempt is being made to be more precise.
Secondly, what was the justification or reason for the decision that a 10 per cent. rule should effectively determine whether there is a relevant interest? Is that based on what is accepted as common precedent, either in European Union countries or elsewhere?
Thirdly, amendment No. 191, which stands alone even though it is in the group, appears to broaden the remit of the Bill by expanding the definition of the phrase “relevant legal services” so that where it reads
“where authorised persons, other than solicitors or registered European lawyers, are managers of,”
the words “or employees of” are added. What is the logic and the reasoning behind that expansion? It is welcome—I am not being critical, as it seems to me to be a logical move in right direction, but I wondered what triggered the change at this stage. There is clearly a difference between considering a firm because the managers do certain jobs and considering all the employees down to whatever level.

Bridget Prentice: On the question about beneficial interest, no, that is not included unless voting rights are attached. Amendment No. 191 was reflected in some of the things that I said earlier in the day, but it is intended to ensure that employees who are authorised persons are in the same position as managers who are authorised persons so that there is a consistency across the piece. Horribly, I have forgotten the hon. Gentleman’s other question.

Simon Hughes: Why was a limit of 10 per cent. set? Is it because that is what is done generally across Europe? What was the main reason for spotting that we needed to insert this raft of redefinitions relating to interests and checks at this stage?

Bridget Prentice: The main reason was that we had further discussions with the Law Society, the DTI and counsel. As a result of those discussions, we felt that it was important to make the amendments.

Jonathan Djanogly: To return to the question of beneficial holding, is the Minister saying that if an owner does not appear on the share register as a beneficial owner and has not had voting rights transferred to themas part of the beneficial ownership, anyone could effectively own an ABS?

Bridget Prentice: I am not saying that anyone could effectively own an ABS, because a raft of other issues are included in the fitness-to-own test. However, the hon. Gentleman is ahead of me on the issue of a beneficial owner who is not on the list, so to speak. I shall have to consider that in more detail and get back to him, in order to ensure that I can reassure him on that.
The 10 per cent. figure was decided on because that was what the Financial Services and Markets Act 2000 used. We used it to be consistent.
Finally, it is important that recognised bodies are not restricted to legal services that only the partners of the firm provide but can cover the services provided by the employees, who carry out much of the firm’s services to clients. That is why employees and managers all had to be defined in a similar fashion.
I hope that that covers the issues raised by the hon. Gentlemen. When I look at Hansard, if I see that there are points that I have not covered I will write to the Committee.

Question put and agreed to.

Amendment made: No. 112, page 41, line 26, at end insert
‘, and references to the holding of shares, or to a shareholding, are to be construed accordingly.’.—[Bridget Prentice.]

Question proposed, That the clause, as amended, stand part of the Bill.

Nicholas Winterton: With this it will be convenient to discuss new clause 16—Patent and trade mark agents—
‘A body—
(a) existing at the date this Act comes into force and entitled to use the description “Registered Trade Mark Agents” or “Registered Patent Agents”; and
(b) which through the operation of section 72(1)(b) of this Act would otherwise be a licensable body,
shall not be a licensable body unless it ceases to be entitled to use the said descriptions.’

Jonathan Djanogly: New clause 16 has been tabled on a probing basis by my hon. Friends and me, with information provided by the Chartered Institute of Patent Agents and the Institute of Trade Mark Attorneys. I should make it clear that both institutes agree with proposals in the Bill to remove restrictions from the type of business structures that can provide legal services. Their experience has demonstrated that external ownership in existing mixed-practice firms has neither been problematic nor posed a threat to consumers in relation to conflicts of interest or anything else. The new clause mirrors one that was tabled by Lord Kingsland in the other place when he pointed out that
“It arises specifically out of the unusual position in which the patent and trade mark agents find themselves in comparison with other approved regulators. Patent and trade mark attorneys have never been restricted as to their ownership. As I understand it, a number of firms—at least one major firm and several smaller ones—have external owners, and have done so for a long time. I should emphasise that this situation is perfectly legal.”
That is true. The two institutes informed me that the ownership of patent and trade mark agents has never been restricted. A number of firms have external owners and have done so perfectly legally without any known consumer or conflict risk.
Patent and trade mark attorneys are directors of one firm that is listed on the alternative investment market, Murgitroyd & Company. There are attorneys of both types in either single or multidisciplinary practices, including partnerships, limited liability partnerships and limited companies. In other words, in private practice several bodies already fall within the definition of an alternative business structure. That fact was not recognised during the debate on 23 January, whenthe other place discussed a gradual approach to introducing ABSs or the possibility of piloting them. Therefore, as Lord Kingsland said, we believe that
“there has never been any suggestion of a risk to a consumer, nor indeed any risk of conflict of interest. To us it seems inequitable to regulate a business practice that has so far been perfectly legal and where no risks have been identified.” —[Official Report, House of Lords, 6 February 2007; Vol. 689, c. 621.]
In addition, many providers—patent attorneys, trade mark attorneys, solicitors, barristers and probably legal executives and licensed conveyancers—are employed in-house. Their employing companies—each usually a subsidiary within a group of companies—might also fall within the definition of an ABS if the in-house practitioner in question continues to provide services to a member of the public, which might be the case if a subsidiary company is hived off but continues to use the patent or trade mark services of its old parent company. In that scenario, the parent company would need to be licensed under the proposed scheme. That type of working practice is well known to the Chartered Institute of Patent Agents, as are circumstances in which the subsidiary is not only owned by the employing company. That demonstrates another form of regulation to be borne by some UK industries.
The proposal in the Bill will require mixed practices with external ownership to seek authorisation as ABSs and to undertake a fitness-to-own test within a transitional period. That would cause considerable cost and disruption, not only to existing firms, who would be forced to restructure, but to the two institutesthat would be obliged to be the licensing authorityfor ABSs. For that reason we have tabled the new clause, which proposes an exemption from licensing requirements.
Despite an assertion from the Lord Chancellor in his speech to the Law Society on 13 October 2006 that ABS proposals are not intended to put pressure on lawyers to change their working arrangements, the institutes are concerned about the effect that the requirement to be licensed will have on their members. They do not feel that the perceived risk that ABSs pose to consumers relates to the type of business service that intellectual property mixed practices provide. They have argued for an exemption of existing practices for any corporate structure, but have also discussed with the Bill team a compromise under which subsequent voluntary structural changes might trigger ABS status. That would put the institutes’ member firms in the same position as new entrants to the ABS market and give them a similar degree of choice.

Sitting suspended for a Division in the House.

On resuming—

Nicholas Winterton: Order. The hon. Member for Huntingdon was on his feet, giving the Committee the benefit of his advice and knowledge. I ask him to continue.

Jonathan Djanogly: It is my great pleasure to do so, Sir Nicholas, even at this late hour.
The level of regulation required under licensing and authorisation proposals for ABSs is substantially greater than for other bodies. As the licensing authority for ABSs, the institutes would have to bear considerable costs to provide that level of regulation. That in turn would mean sizeable fees for ABSs, over and above current regulatory fees. The feedback that has been received from the institutes’ members in response to the proposals in the Bill suggests that the idea of setting up as an ABS may not be as attractive as envisaged to those in private practice, with the licensing system being seen as such an unwanted burden that some firms are considering restructuring to avoid the need for a licence.
In-house practitioners are worried about the ABS requirements being loaded upon them. It may be that so few private practices of patent and trade mark attorneys wish to becomes ABSs under the new system that it will be unsustainable for the institutes to apply to be licensing bodies. The proposals for ABSs could then have the opposite effect to that intended, acting as a disincentive to practices wishing to continue to provide a mixed practice, rather than effectively removing restrictions, in order to allow more flexible business models in the legal services market.

Bridget Prentice: Since the Clementi review, we have demonstrated, I hope, our commitment to ensuring that the new opportunities for external control and investment are balanced by robust safeguards. It is important that ABS firms are protected by the very same statutory safeguards. It is clear throughout the Bill that significant non-lawyer owners must be approved by regulators as fit and proper persons. Providing exemptions to that would create a risk of inconsistency in both standards and the protection of the consumer.
In addition, competition in the legal services market could be distorted by giving some existing trade mark and patent practices a competitive advantage over new practices offering services in the same area. If we allowed those exemptions, as the hon. Gentleman has suggested, we would create even more complexitiesin the framework, albeit without very many real additional benefits for either firms or consumers.
There is sufficient flexibility in the Bill to allow for proportionate regulation, without creating specific exemptions for any category of legal services. I am absolutely confident that the current provisions in the Bill would allow existing trade mark and patent attorney practices, such as those that do not have external ownership, to continue without necessarily requiring an ABS licence. We have provided that firms with small numbers of non-lawyer managers may qualify for flexible regulation as low-risk bodies under clause 108. That means that they may qualify for licensing rules that are not subject to this part ofthe Bill.
I hope that the hon. Gentleman will withdraw the amendment. I understand why he has tabled it, but the Bill is sufficiently flexible to allow trade mark and patent practices to work successfully under the new arrangements.

Nicholas Winterton: Order. The Minister was slightly inaccurate in asking the hon. Gentleman who leads for the Opposition to withdraw his amendment, because we are not discussing an amendment. We are debating clause stand part, with which we are discussing new clause 16, which will be voted upon formally, as and when we reach it.

Jonathan Djanogly: Thank you, Sir Nicholas, I take your point.
Having heard the Minister, I wish to make three general points. The first point is that, as the Minister knows full well, there are different sizes of regulators. Bodies like the trade mark and patent institutes are much smaller than some of the other regulators, and they have specific issues, which have come up now and again during our debates on this Bill. The Minister has acknowledged those issues, but does not seem to have done much about them.
My second point is that those institutes are not closed professions. That means that people who practise in patents or trade marks do not have to be regulated. The implications of getting the provisions of the Bill wrong will mean that more people who practise in patents and trade marks will not move towards regulation. The institutes may fold and the Government may therefore have an opposite effect to what they would want. The Minister just said that regulation should apply to everyone; I am afraid that it simply does not apply in the context of professions that are not closed professions.
Thirdly, if representatives of those institutes were here, they would stand up and say, “Minister, you have been warned”. I just hope that the approach that the Minister has taken is right. Serious concerns have been raised that what she has said is, in fact, not right. I suppose it will be a case of sucking it and seeing. None the less, we have our concerns.

Question put and agreed to.

Clause 72, as amended, ordered to stand part of the Bill.

Clauses 73 to 76 ordered to stand part of the Bill.

Schedule 10 agreed to.

Simon Hughes: On a point of order, Sir Nicholas. Of the remaining clauses up to and including clause 82, the only one that I would be grateful for havinga moment to ask the Minister a question about is clause 80.

Nicholas Winterton: I note that request.

Clauses 77 to 79 ordered to stand part of the Bill.

Clause 80

Function of appellate bodies

Question proposed, That the clause stand part of the Bill.

Simon Hughes: This is the first of two clauses about appeals in the context of alternative business structures. It allows for the Lord Chancellor to establish by order bodies to hear and determine appeals from decisions, which is perfectly proper, reasonable procedure. I would be grateful if the Minister could tell the Committee what sort of bodies the Government envisage would be set up under the procedure. I appreciate that we will return to that point in secondary legislation.
In relation to modifying existing bodies, I recognise that clause 80(2) flags up two such bodies, namely the Solicitors Disciplinary Tribunal and the Discipline and Appeals Committee established by the Council for Licensed Conveyancers. Will the Minister say what is intended by way of secondary legislation if we pass the clause? Will we have one appeals body or several? Will they involve lay people? Some colour and information would be helpful.

Bridget Prentice: The hon. Gentleman is right; the bodies concerned are the Solicitors Disciplinary Tribunal and the Discipline and Appeals Committee of the CLC. The Law Society cannot of its own accord simply create an appeals body, nor can it modify on its own the powers of another statutory body such as the  Solicitors Disciplinary Tribunal. That is why the provision is in the Bill. If I may, I shall write to the Committee with more detail on the structure of the appeals bodies, because further discussions on what the structure will be are ongoing.

Simon Hughes: I am grateful; that is very helpful.It might be particularly helpful if the Minister lets colleagues have her written comments on the matter in good time before we reach Report, for reasons that she will understand.

Question put and agreed to.

Clause 80 ordered to stand part of the Bill.

Clauses 81 to 82 ordered to stand part of the Bill.

Nicholas Winterton: I congratulate the Committee on its stamina. The Committee will now adjourn until 9 o’clock on Thursday morning, when I will be again in the Chair.

Hon. Members: Hear, hear!
 Further consideration adjourned.—[Mr. Michael Foster.]

Adjourned accordingly at twenty-six minutes past Nine o’clock till Thursday 21 June at Nine o’clock.